Statoil’s third-quarter adjusted earnings fell to NOK 30.9 billion from 40.4 billion a year ago on lower production and commodity prices and higher costs. The company reported an unadjusted loss of NOK 4.8 billion compared with a gain of 13.7 billion a year ago due to a NOK 13.5 billion impairment charge of its Canadian assets. Equity production slipped about 1% to 1,829 mboe/d from 1,852 mboe/d last year. However, the lower production was due in part to divestments and a decision to produce less natural gas given low prices.
These issues more than offset new project startups in the last year. Statoil continues to expect production of about 2% in 2014, adjusting for divestments. Higher depreciation from the new project startups weighed on margins and earnings while operating costs increased largely on one-time items. Positively, Statoil announced divestments totaling $3.5 billion during the quarter, including NCS assets and its stake in Shah Deniz.
These efforts play a critical role in the company’s efforts to stabilize declining returns in the coming years. However, as we’ve previously explained, we think that will be difficult to do without higher oil prices. As a result we continue to see Statoil delivering poor returns despite efforts to cut spending and improve project economics. This was a contributing factor to the recent downgrade to a no-moat rating from narrow. We plan to update our model with the latest guidance and results, but do not anticipate a change in our fair value estimate.
