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Equinor Earnings Release 2010
3597_rns_2010-11-03_75e39f6d-f7d5-41ce-8e4e-5afd92271aa3.pdf
Earnings Release
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Statoil
Press release
3 November 2010
Extensive maintenance, robust financials
Third quarter Operating and Financial Review
Statoil's third quarter 2010 net operating income was NOK 28.2 billion, compared to NOK 28.3 billion in the third quarter of 2009.
The quarterly result was positively affected by a 14% increase in liquids prices and an 8% increase in gas prices compared with third quarter last year. In addition, we had a reduction in equity production of 17%, in line with management's expectations, largely caused by extensive maintenance activities impacting both oil and gas production.
Net income in the third quarter 2010 was NOK 13.8 billion compared to NOK 6.6 billion in the same period last year. This result reflects higher prices for both oil and gas, a strong net financial income, lower tax rate and reduced impairment losses, partly offset by lower volumes sold and reduced gains on derivatives.
Adjusted earnings in the third quarter 2010 were NOK 26.7 billion, down 14% from last year. Adjusted earnings after tax were NOK 8.5 billion in the third quarter, down 8% from last year. Adjusted earnings after tax excludes the effect of financial items and the tax on net financial items, and represents an effective adjusted tax rate of 68% compared to 70% in the third quarter of 2009.
"Extensive planned maintenance activities throughout the third quarter have affected both our oil and gas production significantly. Our financial performance and cash generation remains solid, reaffirming our financial flexibility to support a continued development of our portfolio. In a period with very high maintenance and modification activities, both offshore and at our gas processing facilities, we are pleased to see that the positive trend for our HSE results is demonstrated also in this quarter," says Statoil's CEO Helge Lund.
Recently, we have decided to temporarily reduce the current production on two North Sea fields (Gullfaks South and Kvitebjørn), securing sufficient reservoir pressure in order to drill additional wells in a safe manner, and thereby creating both more volumes and values from these fields. This decision, in addition to short term capacity constraints at Kollsnes, has triggered a downward adjustment of our production guidance for 2010 to 1,900 mboe per day from the previously guided range of 1,925-1,975 mboe per day.
Our portfolio of new field developments are progressing as planned towards 2012, however, with limited expected production growth in 2011.
| Third quarter | First nine months | Full year 2009 | |||||
|---|---|---|---|---|---|---|---|
| 2010 | 2009 | Change | 2010 | 2009 | Change | ||
| Net operating income (NOK billion) | 28.2 | 28.3 | (0 %) | 94.4 | 88.1 | 7 % | 121.6 |
| Adjusted earnings (NOK billion) | 26.7 | 31.1 | (14 %) | 102.0 | 96.3 | 6 % | 130.7 |
| Net income (NOK billion) | 13.8 | 6.6 | >100 % | 28.0 | 10.6 | >100 % | 17.7 |
| Earnings per share (NOK) | 4.34 | 2.33 | 87 % | 8.97 | 3.50 | >100 % | 5.75 |
| Average liquids price (NOK/bbl) | 455 | 400 | 14 % | 450 | 347 | 30 % | 364 |
| Average gas price (NOK/scm) | 1.74 | 1.61 | 8 % | 1.65 | 2.02 | (18 %) | 1.90 |
| Equity production (mboe per day) | 1,552 | 1,874 | (17 %) | 1,868 | 1,930 | (3 %) | 1,962 |
Highlights since second quarter 2010:
- Equity production was down 17% from third quarter 2009 to 1,552 mboe per day. For the first nine months of the year, equity production was 1,868 mboe per day, which is down 3% compared to last year.
- Average prices measured in NOK are up 14% for liquids and up 8% for gas compared to third quarter last year.
- On 22 July the Norwegian Parliament (Stortinget) approved the plan for development and operation (PDO) of Marulk.
- On 1 August Morvin started production according to plan.
- On 23 September Statoil announced the acquisition of 20.67% of Nautical Petroleum's interest in the Mariner field in UK.
- On 10 October Statoil announced the agreements with Enduring Resources and Talisman regarding acquisition of 67,000 net acres in the Eagle Ford shale area in southwest Texas in the United States, adding approximately 550 million boe to Statoil's recoverable resources.
Press release
Statoil
- On 21 October the plan for development and operation (PDO) of Valemon was submitted.
- On 22 October the subsidiary Statoil Fuel & Retail ASA was listed on the Oslo Stock Exchange.
OPERATIONAL REVIEW
Third quarter
Total liquids and gas entitlement production in the third quarter of 2010 was 1,379 mboe per day, compared to 1,712 mboe per day in the third quarter of 2009. Total equity [9] production was 1,552 mboe per day in the third quarter of 2010 compared to 1,874 mboe per day in the third quarter of 2009.
The 17% decrease in total equity production was primarily caused by extensive maintenance activities on several oil and gas producing fields and on the gas transportation systems from the Norwegian Continental Shelf (Kårstø and Kollsnes). Natural production decline on mature fields was only partly compensated for by new production capacity. Lower production from the Ormen Lange field due to production permit restrictions, temporary rig capacity issues at the Gullfaks field and a reallocation of volumes between the second and third quarters 2010 added to the third quarter decrease in equity production.
Entitlement production was down 19%, heavily impacted by the drop in equity production described above, as well as the relatively higher adverse effect from Production Sharing Agreements (PSA-effects) in the third quarter of 2010. The average negative PSA effect was 173 mboe per day in the third quarter of 2010 compared to 163 mboe per day in the third quarter last year. The increase was mainly a result of higher Government take through profit tranches regarding fields in Angola.
| Operational data | Third quarter | Nine months | Full year 2009 | ||||
|---|---|---|---|---|---|---|---|
| 2010 | 2009 | Change | 2010 | 2009 | Change | ||
| Average liquids price (USD/bbl) | 73.8 | 65.5 | 13 % | 73.9 | 53.5 | 38 % | 58.0 |
| USDNOK average daily exchange rate | 6.17 | 6.11 | 1 % | 6.09 | 6.49 | (6 %) | 6.28 |
| Average liquids price (NOK/bbl) [3] | 455 | 400 | 14 % | 450 | 347 | 30 % | 364 |
| Gas prices (NOK/scm) | 1.74 | 1.61 | 8 % | 1.65 | 2.02 | (18 %) | 1.90 |
| Refining margin, FCC (USD/boe) [4] | 4.2 | 3.8 | 11 % | 5.3 | 4.7 | 13 % | 4.3 |
| Total entitlement liquids production (mboe per day)[5] | 868 | 1,060 | (18 %) | 971 | 1,065 | (9 %) | 1,066 |
| Total entitlement gas production (mboe per day) | 511 | 651 | (22 %) | 714 | 726 | (2 %) | 740 |
| Total entitlement liquids and gas production (mboe per day) [6] | 1,379 | 1,712 | (19 %) | 1,684 | 1,791 | (6 %) | 1,806 |
| Total equity gas production (mboe per day) | 533 | 665 | (20 %) | 741 | 744 | (0 %) | 760 |
| Total equity liquids production (mboe per day) | 1,019 | 1,209 | (16 %) | 1,127 | 1,187 | (5 %) | 1,202 |
| Total equity liquids and gas production (mboe per day) | 1,552 | 1,874 | (17 %) | 1,868 | 1,930 | (3 %) | 1,962 |
| Total liquids liftings (mboe per day) | 872 | 1,006 | (13 %) | 963 | 1,035 | (7 %) | 1,045 |
| Total gas liftings (mboe per day) | 511 | 650 | (21 %) | 714 | 726 | (2 %) | 740 |
| Total liquids and gas liftings (mboe per day) [7] | 1,383 | 1,656 | (16 %) | 1,677 | 1,760 | (5 %) | 1,785 |
| Production cost entitlement volumes (NOK/boe, last 12 months) [8] | 42.1 | 37.7 | 12 % | 42.1 | 37.7 | 12 % | 38.4 |
| Production cost equity volumes (NOK/boe, last 12 months) | 37.9 | 34.9 | 9 % | 37.9 | 34.9 | 9 % | 35.3 |
| Equity production cost excluding restructuring and gas injection cost (NOK/boe, last 12 months) [9] | 36.9 | 35.3 | 5 % | 36.9 | 35.3 | 5 % | 35.3 |
Total liftings of liquids and gas were 1,383 mboe per day in the third quarter of 2010, a 16% decrease from 1,656 mboe per day in the third quarter of 2009. The decrease in lifting is a result of the decrease in entitlement production, partly offset by increased overlift compared to the third quarter last year. In the third quarter of 2010 there was an overlift of 18 mboe per day [5], compared to an underlift of 42 mboe per day in the third quarter of 2009.
Press release
Statoil
Refining margins (FCC) were USD 4.2 per barrel in the third quarter of 2010, an 11% increase compared to third quarter 2009. Statoil's refineries currently have a margin which is lower than a FCC refinery due to different refinery configuration.
Production cost per boe of entitlement volumes was NOK 42.1 for the 12 months ended 30 September 2010, compared to NOK 37.7 for the 12 months ended 30 September 2009 [8]. Based on equity volumes [9], the production cost per boe for the two periods was NOK 37.9 and NOK 34.9, respectively.
The adjusted production cost per boe of equity production for the 12 months ended 30 September 2010 was NOK 36.9. The comparable figure for the 12 months ended 30 September 2009 was NOK 35.3. Adjustments to production cost include restructuring costs and other costs arising from the merger recorded in the fourth quarter of 2007 that were partially reversed in the fourth quarter of 2008 and 2009 and gas injection costs.
The increase in adjusted production cost per boe is mainly related to lower equity production, as well as currency effects from the weakening of NOK versus USD in the most recent 12 month period compared to the 12 months ended 30 September 2009.
In the third quarter of 2010, a total of nine exploration wells were completed before 30 September 2010, four on the NCS and five internationally. Five wells were announced as discoveries, of which two were drilled outside the NCS.
Major business developments in the period include the approval of the plan for development and operations (PDO) for Marulk (22 July), the start up of Morvin according to plan (1 August), the acquisition of 20.67% interest in the Mariner Field in the UK (23 September), the agreement with Enduring Resources LLC and Talisman Energy Inc in which Statoil acquired acres in the Eagle Ford shale gas formation in the US (10 October), the sanctioning of the Jack and St. Malo development in the Gulf of Mexico (21 October) and the listing of the subsidiary Statoil Fuel & Retail ASA on the Oslo Stock Exchange in October.
First nine months 2010
Total liquids and gas entitlement production in the first nine months of 2010 was 1,684 mboe per day, down 6% from 1,791 mboe per day in the first nine months of 2009. Total equity production was down 3%, from 1,868 mboe per day in the first nine months of 2010 compared to 1,930 mboe per day in the first nine months of last year.
The decrease in total equity production in the first nine months of 2010 compared to the same period in 2009 was primarily due to higher maintenance activity and natural production decline on several fields. The decrease in equity production was partly compensated by production from start up of Tyrihans and Morvin on the NCS and ramp up on existing fields.
The average negative PSA effect on entitlement production was 184 mboe per day in the first nine months of 2010 compared to 139 mboe per day in the first nine months of 2009. The increase was a result of changes in profit tranches regarding fields in Angola.
Total liquids and gas liftings in the first nine months of 2010 were 1,677 mboe per day, compared to 1,760 mboe per day in the first nine months of 2009. The 5% decrease in lifting is based on the decrease in entitlement production as described above. In the first nine months of 2010 there was an overlift of 6 mboe per day. In the same period in 2009, there was an underlift of 16 mboe per day.
Refining margins (FCC) were USD 5.3 per barrel in the first nine months of 2010, a 13% increase since the same period of 2009. Statoil's refineries currently have a margin which is lower than a FCC refinery due to different refinery configuration.
In the first nine months of 2010 Statoil completed 27 exploration wells, 13 on the NCS and 14 internationally. A total of 16 wells were announced as discoveries in the period, 11 on the NCS and five internationally.
Press release
Statoil
FINANCIAL REVIEW
Net operating income
Earnings per share
Net income
Third quarter
In the third quarter of 2010, net operating income was NOK 28.2 billion, largely unchanged from last year. Revenues were considerably impacted by reduced volumes sold for both liquids and gas, and were only partly compensated by higher liquids and gas prices. Purchases (net of inventory variation) represent Statoil's purchases of SDFI and 3rd party volumes and increased 13% compared to third quarter 2009, mainly due to higher prices of liquids measured in NOK. Operating expenses were down 4% to NOK 12.8 billion and selling, general and administration expenses increased by NOK 0.5 billion to NOK 2.8 billion, both significant affected by the reversal of accruals made in previous periods.
| IFRS income statement (in NOK billion) | Third quarter | First nine months | Full year 2009 | ||||
|---|---|---|---|---|---|---|---|
| 2010 | 2009 | Change | 2010 | 2009 | Change | ||
| REVENUES AND OTHER INCOME | |||||||
| Revenues | 125.8 | 122.4 | 3 % | 383.7 | 339.7 | 13 % | 462.3 |
| Net income (loss) from associated companies | 0.5 | 0.6 | (12 %) | 1.2 | 1.2 | (2 %) | 1.8 |
| Other income | 1.1 | 0.0 | >100 % | 1.5 | 0.1 | >100 % | 1.4 |
| Total revenues and other income | 127.4 | 123.1 | 4 % | 386.4 | 341.1 | 13 % | 465.4 |
| OPERATING EXPENSES | |||||||
| Purchase [net of inventory variation] | 67.4 | 59.6 | 13 % | 189.7 | 150.4 | 26 % | 205.9 |
| Operating expenses | 12.8 | 13.3 | (4 %) | 44.1 | 41.2 | 7 % | 56.9 |
| Selling, general and administrative expenses | 2.8 | 2.3 | 22 % | 9.7 | 8.1 | 20 % | 10.3 |
| Depreciation, amortisation and net impairment losses | 12.6 | 17.6 | (28 %) | 38.0 | 41.6 | (8 %) | 54.1 |
| Exploration expenses | 3.6 | 2.1 | 75 % | 10.4 | 11.8 | (11 %) | 16.7 |
| Total operating expenses | (99.2) | (94.8) | (5 %) | (291.9) | (253.0) | (15 %) | (343.8) |
| Net operating income | 28.2 | 28.3 | 0 % | 94.4 | 88.1 | 7 % | 121.6 |
| Net financial items | 7.0 | 3.2 | >100 % | 4.6 | (5.5) | >(100) % | (6.7) |
| Income tax | (21.5) | (24.9) | 14 % | (71.0) | (72.0) | 1 % | (97.2) |
| Net income | 13.8 | 6.6 | >100 % | 28.0 | 10.6 | >100 % | 17.7 |
Net operating income includes certain items that management does not consider to be reflective of Statoil's underlying operational performance. Management adjusts for these items to arrive at adjusted earnings. Adjusted earnings is a supplemental non-GAAP measure to Statoil's IFRS measure of net operating income which management believes provides an indication of Statoil's underlying operational performance in the period and facilitates a better evaluation of operational developments between periods.
Press release
Statoil
In the third quarter of 2010, impairment losses net of reversals (NOK 1.6 billion) and lower values of products in operational storage (NOK 0.2 billion) had a negative impact on net operating income, while higher fair value of derivatives (NOK 0.5 billion), overlift (NOK 0.5 billion), gain on sale of assets (NOK 0.8 billion) and other accruals (NOK 1.2 billion) had a positive impact on net operating income. Adjusted for these items and the effects of eliminations (NOK 0.3 billion), adjusted earnings were NOK 26.7 billion in the third quarter of 2010, which is a decrease of 14% compared to last year.
In the third quarter of 2009, impairment losses net of reversals (NOK 5.2 billion), underlift (NOK 0.8 billion), lower values of products in operational storage (NOK 0.2 billion) negatively impacted net operating income, while higher fair value of derivatives (NOK 3.0 billion) had a positive impact on net operating income. Adjusting for these items and the effects of eliminations (NOK 0.4 billion), adjusted earnings were NOK 31.1 billion in the third quarter of 2009.
The decrease in adjusted earnings was mainly attributable to reduced volumes sold because of reduced production of both liquids and gas. Higher liquids and gas prices only partly compensated for the reduction, which mainly stem from high turnaround activity, declining production from mature fields and production permit restrictions. Adjusted depreciation, amortisation and net impairment losses decreased by 13% mostly due to lower production. Adjusted exploration expenses increased by NOK 1.5 billion compared to same period last year mainly due to more expensive wells, expensing of capitalised exploration cost from previous periods and lower capitalisation of drilling cost. In the third quarter of 2010 adjusted operating expenses were NOK 14.2 billion, up by 4% compared to the same period last year. Adjusted selling, general and administrative expenses were NOK 2.2 billion, down NOK 0.2 billion compared to last year.
| Adjusted earnings (in NOK billion) | Third quarter | First nine months | Full year 2009 | ||||
|---|---|---|---|---|---|---|---|
| 2010 | 2009 | Change | 2010 | 2009 | Change | ||
| Adjusted total revenues and other income | 124.6 | 120.9 | 3 % | 385.5 | 341.4 | 13 % | 465.7 |
| Adjusted purchase [net of inventory variation] | 67.2 | 59.4 | 13 % | 189.9 | 151.9 | 25 % | 208.1 |
| Adjusted operating expenses | 14.2 | 13.6 | 4 % | 42.7 | 43.1 | (1 %) | 58.5 |
| Adjusted selling, general and administrative expenses | 2.2 | 2.4 | (7 %) | 7.5 | 8.0 | (7 %) | 10.1 |
| Adjusted depreciation, amortisation and impairment | 10.7 | 12.4 | (13 %) | 33.2 | 34.5 | (4 %) | 47.0 |
| Adjusted exploration expenses | 3.6 | 2.1 | 75 % | 10.2 | 7.7 | 34 % | 11.3 |
| Adjusted earnings [11] | 26.7 | 31.1 | (14 %) | 102.0 | 96.3 | 6 % | 130.7 |
| Financial data | Third quarter | First nine months | Full year 2009 | ||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| 2010 | 2009 | Change | 2010 | 2009 | Change | ||
| Weighted average number of ordinary shares outstanding | 3,182,526,140 | 3,183,568,449 | 3,182,802,756 | 3,184,196,695 | 3,183,873,643 | ||
| Earnings per share (NOK) | 4.34 | 2.33 | 87% | 8.97 | 3.50 | >100 % | 5.75 |
| Non-controlling interests (NOK billion) | 0.0 | 0.8 | (100 %) | 0.6 | 0.5 | 13% | 0.6 |
| Cash flows provided by operating activities (NOK billion) | 19.5 | 22.5 | (13 %) | 67.4 | 61.2 | 10% | 73.0 |
| Gross investments (NOK billion) | 18.9 | 25.0 | (24 %) | 58.7 | 64.2 | (9%) | 85.0 |
| Net debt to capital employed ratio | 27.7 % | 27.1 % | 27.7 % | 27.1 % | 27.3 % |
Net financial items amounted to a gain of NOK 7.0 billion in the third quarter of 2010, compared to a gain of NOK 3.2 billion in the third quarter of 2009. The gain in the third quarter of 2010 was primarily due to foreign exchange gains of NOK 4.0 billion, in combination with fair value gains on interest rate swap positions related to the interest rate management of external loans of NOK 2.8 billion. Correspondingly, the gain in the third quarter of 2009 was primarily due to foreign exchange gains of NOK 2.0 billion, in combination with fair value gains on interest rate swap positions related to the interest rate management of external loans of NOK 1.7 billion.
The fair value gains on interest rate swap positions were caused by decreasing USD interest rates during the third quarter of 2010. The net foreign exchange gains mainly relate to currency swap positions used for liquidity management, due to a decrease in USDNOK currency rates during the third quarter of 2010.
Press release
Statoil
Adjusted for these factors, foreign exchange effects on the financial income and impairment of assets, net financial items before tax would amount to a loss of approximately NOK 0.1 billion for the period. In the third quarter of 2009, net financial items excluding FX and IR derivatives before tax amounted to a loss of NOK 0.3 billion.
| Third quarter 2010 (in NOK billion) | Interest income | Net foreign exchange | Interest expense | Net before tax | Estimated tax effect | Net after tax |
|---|---|---|---|---|---|---|
| Financial items according to IFRS | 1.4 | 4.0 | 1.6 | 7.0 | (2.0) | 5.0 |
| Foreign exchange (FX) impacts (incl. derivatives) | (0.3) | (4.0) | (4.3) | |||
| Interest rate (IR) derivatives | (2.8) | (2.8) | ||||
| Subtotal | (0.3) | (4.0) | (2.8) | (7.1) | 2.0 | (5.1) |
| Financial items excluding FX and IR derivatives | 1.1 | 0 | (1.2) | (0.1) | 0 | 0.1 |
| Exchange rates | 30 September 2010 | 31 December 2009 | 30 September 2009 | |||
| --- | --- | --- | --- | |||
| USDNOK | 5.84 | 5.78 | 5.78 | |||
| EURNOK | 7.97 | 8.32 | 8.46 |
Income taxes were NOK 21.5 billion in the third quarter of 2010, equivalent to an effective tax rate of 60.9%, compared to NOK 24.9 billion in the third quarter of 2009, equivalent to an effective tax rate of 78.9%. The variance in effective tax rates between the periods is mainly explained by a high tax rate in the third quarter of 2009 caused by significantly higher taxable income than accounting income in companies that are taxable in other currencies than the functional currency. The high effective tax rate in the third quarter of 2009 was also caused by operating losses and impairment losses in entities which are subject to lower than average tax rates. The decreased effective tax rate in the third quarter of 2010 was also caused by relatively lower income from the NCS which is subject to higher than average tax rate. This was partly offset by the aforementioned currency effect.
In the third quarter of 2010, income before tax amounted to NOK 35.3 billion, while taxable income was estimated to be NOK 6.6 billion higher. The estimated difference of NOK 6.6 billion arose in companies that are taxable in other currencies than the functional currency. The tax effect of this estimated difference contributed to a tax rate of 60.9%. Management does not consider this tax rate to be reflective of the underlying tax exposure. Adjusted earnings after tax, which exclude net financial items and tax on net financial items, is an alternative measure which provides an indication of Statoil's tax exposure to its underlying operational performance in the period, and management believes that this measure better facilitates a comparison between periods.
| Composition of tax expense and effective tax rate in the third quarter of 2010 | Before tax | Tax | Tax rate | After tax |
|---|---|---|---|---|
| Adjusted earnings | 26.7 | (18.1) | 68 % | 8.5 |
| Adjustments | 1.6 | 0.2 | (10 %) | (1.7) |
| Net operating income | 28.2 | (18.0) | 64 % | 10.2 |
| Financial items | 7.0 | (3.5) | 50 % | 3.5 |
| Total | 35.3 | (21.5) | 61 % | 13.8 |
Press release
Statoil
Adjusted earnings after tax in the third quarter of 2010 were NOK 8.5 billion, down 8% from NOK 9.2 billion in the third quarter of 2009. The tax rate on adjusted earnings was 68% and 70% in the third quarter of 2010 and 2009, respectively.
| Adjusted earnings after tax by segment | Third quarter | |||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||
| (in NOK billion) | Adjusted earnings | Tax on adjusted earnings | Adjusted earnings after tax | Adjusted earnings | Tax on adjusted earnings | Adjusted earnings after tax |
| E&P Norway | 21.7 | 15.9 | 5.8 | 25.2 | 18.6 | 6.6 |
| International E&P | 2.5 | 1.0 | 1.5 | 2.8 | 1.4 | 1.4 |
| Natural Gas | 2.1 | 1.4 | 0.7 | 3.3 | 1.8 | 1.5 |
| Manufacturing & Marketing | 0.9 | 0.1 | 0.8 | 0.1 | 0.0 | 0.1 |
| Other | (0.5) | (0.2) | (0.3) | (0.3) | 0.0 | (0.3) |
| Adjusted earnings [11] | 26.7 | 18.1 | 8.5 | 31.1 | 21.8 | 9.2 |
In the third quarter of 2010, net income was NOK 13.8 billion compared to NOK 6.6 billion last year. The increase is mainly due to a stronger net financial income and a lower effective tax rate. Net operating income was largely unchanged because the increase in operating income caused by higher prices for both liquids and gas, reduced depreciation and amortisation and lower net impairment losses because of lower production volumes, were offset by the drop in production volumes, reduced gains on derivatives, higher prices for volumes purchased and increased exploration expenses which stem from higher drilling activity and higher expensing of exploration expenditures capitalised in previous periods.
In the third quarter of 2010, earnings per share based on net income were NOK 4.34 compared to NOK 2.33 in the third quarter of 2009.
First nine months 2010
In the first nine months of 2010, the net operating income was NOK 94.4 billion, compared to NOK 88.1 billion last year. The increase is mainly due to higher prices for liquids, only partly offset by lower gas prices, reduced volumes of liquids sold, loss on derivatives and a provision for an onerous contract.
Purchases (net of inventory variation) increased by 26%, mainly due to higher prices of liquids measured in NOK. Operating expenses increased by NOK 2.9 billion and selling, general and administration expenses increased by NOK 1.6 billion significantly affected by a provision for an onerous contract in the second quarter 2010. Depreciation, amortisation and net impairment losses decreased by 8% in the first nine months of 2010 compared to same period last year, mainly due to lower equity volumes. Exploration expenses were down 11% compared to first nine months of 2009 mainly because of lower drilling activity.
In the first nine months of 2010, impairment losses net of reversals (NOK 4.7 billion), lower fair value of derivatives (NOK 0.7 billion) and other accruals (NOK 3.9 billion) negatively impacted net operating income, while overlift (NOK 0.3 billion), higher values of products in operational storage (NOK 0.2 billion) and gain on sale of assets (NOK 1.1 billion) had a positive impact on net operating income. Adjusted for these items and effects of eliminations (NOK 0.1 billion), adjusted earnings were NOK 102.0 billion in the first nine months of 2010.
In the first nine months of 2009, both impairment losses net of reversals (NOK 10.9 billion) and underlift (NOK 1.3 billion) negatively impacted net operating income, while higher fair value of derivatives (NOK 2.4 billion), higher values of products in operational storage (NOK 1.5 billion), other accruals (NOK 1.4 billion) and gain on sale of assets (NOK 0.5 billion) all had a positive impact on net operating income. Adjusted for these items and effects of inter-company eliminations (NOK 1.8 billion), adjusted earnings were NOK 96.3 billion in the first nine months of 2009.
The 6% increase in adjusted earnings from the first nine months of 2009 to the first nine months of 2010 stems primarily from the increase in prices for liquids, only partly offset by lower gas prices and reduced volumes of liquids sold.
Adjusted exploration expenses increased by 34% due to more expensive wells and increased expense of capitalised exploration cost from previous years. Adjusted depreciation, amortisation and net impairment losses decreased by 4%, mainly because of lower production volumes. Adjusted operating expenses were NOK 42.7 billion in the first nine months of 2010, slightly down compared to same period last year. Adjusted selling, general and administrative expenses were NOK 7.5 billion in the first nine months of 2010, down NOK 0.5 billion compared to last year.
Net financial items amounted to a gain of NOK 4.6 billion for the first nine months of 2010, compared to a loss of NOK 5.5 billion for the first nine months of 2009. The gain for the first nine months of 2010 was primarily due to fair value gains on interest rate swap positions related to the interest rate management of external loans of NOK 6.7 billion, partly offset by foreign exchange losses of NOK 1.8 billion. Correspondingly the loss for the first nine months of 2009 was primarily due to losses on interest rate swap positions related to the interest rate management of NOK 4.2 billion in combination with a loss related to impairment of the investment in the Pernis refinery of NOK 1.1 billion.
Press release 7
Statoil
The fair value gains on interest rate swap positions were caused by decreasing USD interest rates during the nine month period ended 30 September 2010. The net foreign exchange losses mainly relate to currency swap positions used for liquidity management, due to an increase in USDNOK currency rates during the first nine months of 2010.
Adjusted for these factors, foreign exchange effects on the financial income and impairment of assets, net financial items before tax would amount to a loss of approximately NOK 0.8 billion for the period. In the first nine months of 2009, adjusted net financial items before tax amounted to a loss of NOK 0.1 billion.
| First nine months of 2010 (in NOK billion) | Interest income | Net foreign exchange | Interest expense | Net before tax | Estimated tax effect | Net after tax |
|---|---|---|---|---|---|---|
| Financial items according to IFRS | 2.7 | (1.8) | 3.7 | 4.6 | 0.2 | 4.8 |
| Foreign exchange (FX) impacts (incl. derivatives) | (0.3) | 1.8 | 1.5 | |||
| Interest rate (IR) derivatives | (6.9) | (6.9) | ||||
| Subtotal | (0.3) | 1.8 | (6.9) | (5.4) | 0.3 | (5.1) |
| Financial items excluding FX and IR derivatives | 2.4 | 0 | (3.2) | (0.8) | 0.5 | (0.3) |
Income taxes were NOK 71.0 billion in the first nine months of 2010, equivalent to a tax rate of 71.7%, compared to NOK 72.0 billion in the first nine months of 2009, equivalent to a tax rate of 87.1%. The decrease in tax rate was mainly due to a high tax rate in the first nine months of 2009 caused by higher taxable income than accounting income in companies that are taxable in other currencies than the functional currency. The decrease in the tax rate was also caused by relatively lower income from the NCS in the first nine months of 2010 compared to the first nine months of 2009.
| Composition of tax expense and effective tax rate in the first nine months of 2010 | Before tax | Tax | Tax rate | After tax |
|---|---|---|---|---|
| Adjusted earnings | 102.0 | (70.8) | 69 % | 31.2 |
| Adjustments | (7.6) | 1.0 | 14 % | 6.5 |
| Net operating income | 94.4 | (69.7) | 74 % | 24.7 |
| Financial items | 4.6 | (1.3) | 28 % | 3.3 |
| Total | 99.0 | (71.0) | 72 % | 28.0 |
Adjusted earnings after tax exclude the effects of net financial items and tax on financial items. In the first nine months of 2010 adjusted earnings after tax were NOK 31.2 billion, up from NOK 28.6 billion in the same period last year. The adjusted tax rate on adjusted earnings was 69% and 70% in the first nine months of 2010 and 2009, respectively.
| Adjusted earnings after tax by segment (in NOK billion) | Nine months | |||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||
| Adjusted earnings | Tax on adjusted earnings | Adjusted earnings after-tax | Adjusted earnings | Tax on adjusted earnings | Adjusted earnings after-tax | |
| E&P Norway | 79.9 | 59.0 | 20.9 | 75.6 | 55.7 | 19.9 |
| International E&P | 9.8 | 4.4 | 5.3 | 5.8 | 2.5 | 3.3 |
| Natural Gas | 10.0 | 7.1 | 2.9 | 12.5 | 8.8 | 3.7 |
| Manufacturing & Marketing | 2.6 | 0.6 | 2.0 | 3.1 | 1.4 | 1.7 |
| Other | (0.2) | (0.3) | 0.1 | (0.7) | (0.7) | 0.0 |
| Group | 102.0 | 70.8 | 31.2 | 96.3 | 67.7 | 28.6 |
In the first nine months of 2010, the increase in net income was mainly due to increased net operating income caused by higher revenues from liquids, higher net financial income and a lower effective tax rate.
Press release
Statoil
In the first nine months of 2010 earnings per share amounted to NOK 8.97, compared to NOK 3.50 in the first nine months of 2009.
Cash flows provided by operations amounted to NOK 67.4 billion in the first nine months of 2010, while cash flows from underlying operations were NOK 132.2 billion. Taxed paid amounted to NOK 57.1 billion and dividend payments NOK 19.1 billion. Cash flows used in investing activities in the first months of 2010 was NOK 54.1 billion.
OUTLOOK
Statoil's revised guidance for equity production in 2010 is 1,900 mboe per day. The guidance for 2012 is maintained at between 2,060 and 2,160 mboe per day [13]. Commercial considerations related to gas sales activities, operational regularity, the timing of new capacity coming on stream and gas offtake represent the most significant risks related to the production guidance.
Planned turnarounds are expected to have a negative effect for the fourth quarter 2010 of around 15 mboe per day. In total the turnarounds are estimated to have a negative impact on the equity production of around 50 mboe per day for the full year 2010. These effects are only related to production of liquids. In addition, the 2010 gas production has also been negatively impacted by planned turnaround activities.
Capital expenditures for 2010, excluding acquisitions and capital leases, are estimated at around USD 13 billion.
Statoil's revised estimate for production cost per boe for 2010 equity volumes is NOK 36-37 per boe, reflecting the revised production guidance.
The company will continue to mature the large portfolio of exploration assets and expects an exploration activity level in 2010 of around USD 2.3 billion.
These forward-looking statements reflect current views about future events and are, by their nature, subject to significant risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. See "Forward-Looking Statements" below.
RISK UPDATE
Risk factors
The results of operations largely depend on a number of factors, most significantly those that affect the price obtained in NOK for products sold. Specifically, such factors include the level of liquids and natural gas prices, trends in the exchange rates, liquids and natural gas production volumes, which in turn depend on entitlement volumes under profit sharing agreements and available petroleum reserves, Statoil's, as well as our partners' expertise and co-operation in recovering oil and natural gas from those reserves, and changes in Statoil's portfolio of assets due to acquisitions and disposals.
The illustration shows how certain changes in crude oil prices (a substitute for liquids prices), natural gas contract prices and the USDNOK exchange rate, if sustained for a full year, could impact our net operating income in 2010. Changes in commodity prices, currency and interest rates may result in income or expense for the period as well as changes in the fair value of derivatives in the balance sheet.
The illustration is not intended to be exhaustive with respect to risks that have or may have a material impact on the cash flows and results of operation. See the annual report for 2009 and the 2009 Annual Report on Form 20-F for a more detailed discussion of the risks to which Statoil is exposed.
Financial risk management
Statoil has policies in place to manage risk for commercial and financial counterparties by the use of derivatives and market activities in general. Statoil has so far had only limited exposure towards distressed parties and instruments. Only insignificant counterparty losses have been incurred so far. The group's exposure towards financial counterparties is considered to have an acceptable risk profile.
The markets for short- and long-term financing are currently considered to function comfortably for borrowers with Statoil's credit standing and general characteristics. However, under the current circumstances uncertainty still exists. Funding costs for short maturities are generally at historically low levels. Long-term funding costs are at attractive levels. With regard to liquidity management, the focus is on finding the right balance between risk and reward and most funds are currently placed in short-term certificates with minimum single A-rating, or with banks with minimum single A-rating.
In accordance with our internal credit rating policy, we assess counterparty credit risk annually and assess counterparties identified as high risk more frequently. The internal credit ratings reflect our assessment of the counterparties' credit risk.
Press release
Statoil
HEALTH, SAFETY AND THE ENVIRONMENT (HSE)
Third quarter
The total recordable injury frequency was 4.2 in the third quarter of 2010 compared to 4.1 in the third quarter of 2009. The serious incident frequency decreased from 1.6 in the third quarter of 2009 to 1.4 in the third quarter of 2010.
The volume of oil spills decreased from 98 cubic metres in the third quarter of 2009 to 21 cubic metres in the third quarter of 2010. The number of accidental oil spills in the third quarter of 2010 was at the same level as in the third quarter of 2009.
First nine months
The total recordable injury frequency was 4.1 in the first nine months of 2010 compared to 4.3 in the first nine months of 2009. The serious incident frequency rate decreased from 2.0 in the first nine months of 2009 to 1.3 in the first nine months of 2010.
The volume of oil spills decreased from 147 cubic metres in the first nine months of 2009 to 33 cubic metres in the first nine months of 2010. The number of accidental oil spills in the first nine months of 2010 was at the same level as for the first nine months of 2009.
| HSE | Third quarter | First nine months | Full year | ||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | 2009 | |
| Total recordable injury frequency | 4.2 | 4.1 | 4.1 | 4.3 | 4.1 |
| Serious incident frequency | 1.4 | 1.6 | 1.3 | 2.0 | 1.9 |
| Accidental oil spills (number) | 102 | 102 | 299 | 306 | 435 |
| Accidental oil spills (cubic metres) | 21 | 98 | 33 | 147 | 170 |
References
To see end notes referenced in main table and text please download our complete report from our website -
http://www.statoil.com/en/InvestorCentre/QuarterlyResults/Pages/default.aspx
Further information from:
Investor relations
Hilde Merete Nafstad, senior vice president investor relations, + 47 957 83 911 (mobile)
Morten Sven Johannessen, vice president investor relations USA, + 1 203 570 2524 (mobile)
Press
Jannik Lindbæk jr, vice president for media relations, + 47 977 55 622 (mobile)
Press release 10