Integrated oil and gas major Statoil (EQNR -0.07%) has long held a distinct advantage over its peers. It's routinely among the top oil exploration and production companies in the world, and is also the biggest natural gas supplier in Europe. And yet, it's at risk of losing its competitive advantage. That's because Statoil management is taking the company in a new direction, one marked by restricted capital expenditures and more focused spending. As a result, Statoil may soon discover it's lost ground in the race to capitalize on some of the most promising oil and gas fields across the world.

Statoil slows down
In a recent announcement, Statoil management advised investors it would slow down its exploration and production activities in light of what it describes as an extremely difficult environment. Rising costs have cut the potential returns on new projects, which caused management to delay its long-term production target. For example, Statoil pushed back its 2020 production target by three to four years, and will slow its Arctic oil production.

This comes in the aftermath of Statoil's fourth quarter and full-year results, which were fairly disappointing. Statoil's operating income fell 15% last year, driven largely by the impact of asset divestments. Statoil shed more than $4 billion in assets last year.

Crossing the pond
The decision to cut back is a dramatic about-face for Statoil, a company which had been investing aggressively in oil and gas development for several years. Statoil discovered more oil and gas last year than any other company in the world. In addition, the company made the world's largest oil discovery by volume last year in offshore Canada.

And, Statoil saw great success over the past few years in U.S. shale. Statoil has considerable operations in the most promising U.S. plays, including the Eagle Ford, Bakken, and Marcellus Shale.

Statoil has approximately 73,000 acres in the Eagle Ford field. It controls half of the asset, the other half of which it operates in a joint venture with Talisman Energy (NYSE: TLM). The 50/50 joint-venture was formed in 2010. Talisman's and Statoil's strategy is to focus on the liquids-rich areas of the play.

Statoil's Marcellus play represents its major inroads into North American natural gas, since the Marcellus shale is suspected to be the second-largest natural gas field in the world. Statoil first entered the area by acquiring significant acreage from Chesapeake Energy (CHKA.Q) in 2008. Both companies hold a joint venture, and Statoil has purchased additional acreage in the years since. As of March last year, Statoil's production averaged 86,000 barrels of oil equivalents per day.

Long-term growth trajectory is a concern
Going forward, Statoil plans on a limited budget. Management intends to cut spending by more than $5 billion from 2014 to 2016 as compared to previous plans. Meanwhile, Statoil maintains its goal of 3% compound production growth through 2016, but that may be an ambitious figure in light of its newly trimmed budget.

For several years, Statoil invested heavily in oil and gas exploration and discovery, but now management looks like it has egg on its face. That's because rising project costs are significantly hurting returns on investment, which has now caused Statoil to change strategy. Statoil has pushed back its long-term production target and will slow capital expenditures in the years ahead, and instead use cash flow to reward shareholders with more aggressive share buybacks and dividend payments.

While the market reaction was overwhelmingly positive to Statoil's announcement, long-term investors have cause for concern that the company's underlying growth over the next several years may disappoint. Greater cash returns are nice in the short-term, but capital expenditures are the lifeblood of energy companies like Statoil that rely on exploration and production.

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