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Statoil's Earnings May Stink, but Management Remains Strangely Optimistic

By Tyler Crowe - Feb 4, 2016 at 2:04PM

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Even though Statoil racked up a large loss for the fourth quarter, its CEO gave some investors reason to believe that things could get much, much better in the future.

Image source: Statoil.

As with every other company in the oil and gas space, Statoil's (EQNR -1.02%) most recent earnings left quite a bit to be desired. Unlike others, though, Statoil management seemed much more upbeat about the future and how the company will be able to manage the downturn. Let's do a quick rundown of the numbers and see why Statoil's executives seem to have a little more skip in their step compared to their peers. 

Statoil results: The raw numbers

Quarterly Results*Q4 2015Q3 2015Q4 2014
Revenue $13,440  $13,464  $17,640 
EBITDA $4,152  $4,080  $5,220 
Earnings Per Share ($0.35)  ($0.11)  ($0.34)
Cash Flow From Operations $1,564  $5,064  $3,288 

Data source: Statoil earnings results, all figures converted from NOK to USD.* In U.S. dollars, in millions, except per-share data.

What happened with Statoil this quarter?

  • Management and the board announced that it was maintaining its current dividend payment of 0.2201 per share. To preserve cash, though, it also introduced a scrip dividend, where shareholders can elect to get its dividend in additional shares at a 5% discount to market price. 
  • Production for the fourth quarter was down 3% compared to last year, but the decline is more a reflection of divestments as its continuing operations maintained production.
  • It made a final investment decision to go forward with its Hywind pilot park in Scotland, the first attempt any company has made at making a floating offshore wind farm.
  • Reserve replacement ratios for the year declined to 55%. A large component of declining reserve replacements was the decline in oil prices as well as the farm out of its stake in Shah Deniz.
  • 2016 capital expenditures for Statoil are expected to be $14.7 billion. This is a 18% decline in spending from this time last year when using Statoil's reporting currency, the Norwegian Krone.
  • For those who have been combing over Statoil's results while keeping a foreign exchange rate calculator handy, you don't need to worry anymore. Starting next quarter, the company will report all of its earnings in U.S. dollars instead of the krone. 

What management had to say
Of all the oil and gas CEOs who have commented during this quarter, those of CEO Eldar Saetre were some of the most optimistic -- not because he sees a recovery in oil and gas prices coming soon but because the projects the company has coming on line in the coming years will be profitable at very low prices.

The result in the fourth quarter is highly affected by the weak commodity price. However, we continue to make strong progress on costs and efficiency. We are now further stepping up our improvement programme, and tightening our capital and exploration expenditures. These are key elements in navigating the business during a period of low oil prices. Statoil is well positioned to capture value from an expected upturn in the market. We have substantially improved our non-sanctioned project portfolio. More than 80% of the operated projects, with start-up by 2022, have a break-even oil price below USD 50 per boe. 

According to the company's projections, the average breakeven price for Statoil's new production is about $41 per barrel of oil equivalent. That would be well below the breakeven projected prices for most of its big oil peers. 

Looking forward
While the company does have some promising new production projects slated to come on line, investors should expect them to grow the base much. According to its projections, Statoil expects annual production growth in the 1%-4% range between now and 2019. That may not sound like it will move the needle much in terms of growth, but if it can replace higher-cost production with those new projects, it should help to improve profitability faster than top-line growth. 

10-second takeaway
Statoil is suffering to make ends meet right now, but that is pretty common across the entire energy space. If the company can get enough shareholders to sign up for its scrip dividend program, that should help the company save a pretty significant amount of cash without completely killing shareholder returns. With a suite of projects slated to come on line that have such a low breakeven price, Statoil will likely reemerge from this downturn in a rather strong position in the market.

Tyler Crowe has no position in any stocks mentioned. You can follow him at or on Twitter @TylerCroweFool.

The Motley Fool recommends Statoil (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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