Statoil pumps up its profits once again

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Norway’s biggest and arguably most important company, Statoil, impressed analysts with its second-quarter results on Thursday. The company is clearly benefiting from higher oil prices and cost control, and now appears “well-positioned” to outdo its competitors.

Things are looking up at Statoil, like here on its Gina Krog oil field in the North Sea. Statoil and its partners started production at Gina Krog earlier this summer. It’s among several new fields coming on line and expected to boost overall production by 5 percent this year. PHOTO: Statoil/Ole Jørgen Bratland

That’s the assessment not only from Norwegian analysts but major US bank Citi as well. It has now singled out Norway’s Statoil as one of its favourite companies, and is recommending it to investors.

Results for the first-half “confirm our view,” wrote Citi analyst Alastair R Syme, that Statoil is “well-positioned” to do better than other companies in today’s oil market situation. Syme believes Statoil has the correct capital structure, that its cash flow is rising and that it can restore cash dividends. He thinks Statoil’s share price (NOK 144.70 at mid-morning) is attractive also after rising on news of its strong second-quarter and first-half results.

Newspaper Dagens Næringsliv (DN) reported that Statoil’s strength can also help the company make acquisitions at a time when the oil industry is still in a downturn following the oil price collapse in 2014.

News service TDN Finans reported how Oslo-based Pareto Securities also noted that Statoil’s improved results (external link to Statoil’s own earnings report) were even better than expected, and that the company has proven it can deliver a strong positive cash flow at an oil price of USD 50 per barrel, half of what it was three years ago but still higher than relatively recent lows of less than USD 30. Statoil’s aggressive cost-cutting program over the past several years is clearly paying off, analysts noted.

Statoil’s Finance Director Hans Jakob Hegge presented results showing revenues of USD 14.9 billion (higher than the USD 13 billion expected) and a net profit of USD 1.4 billion that also was higher than the USD 1.1 billion expected. Its adjusted operating result of USD 3.2 billion beat out expectations of USD 2.97 billion and was triple the USD 913 million logged in the same period last year, when results were hit by low oil and gas prices and had sunk dramatically from the second quarter in 2015.

Statoil CEO Eldar Sætre had good reason to be pleased, and also announced a 5 percent jump in expected production growth this year. He cited “good operational performance with high production efficiency and continued cost improvements.”

Sætre also noted that Statoil has drilled 14 exploration wells so far this year and made nine discoveries, several of which “can quickly be put into profitable production.” Statoil’s ongoing expansion into the Arctic remains controversial, however, with environmentalists and climate experts claiming it defies Norway’s commitments to cut carbon emissions and protect the sensitive Arctic environment. A vast majority of Norwegians also oppose Statoil’s efforts to open up new exploration areas off some of Norway’s most scenic coastline and in rich fishing grounds

Norway’s oil industry nonetheless continues to have strong support from both the Conservative government coalition and its opposition in the Labour and Center parties, also heading into the September parliamentary election, simply because of all the money it generates. Efforts continue to diversify the country’s oil-fueled economy in the event of another oil price collapse, but oil is still seen as critical for Norway’s economy and growth prospects. Berglund