Statoil: 2014 fourth quarter results

Statoil's (OSE:STL, NYSE:STO) fourth quarter and preliminary 2014 results and Capital Markets Update

Statoil's net operating income for the full year 2014 was NOK 109.5 billion. Fourth quarter 2014 net operating income was NOK 9.0 billion. Adjusted earnings in the fourth quarter of 2014 were NOK 26.9 billion, compared to NOK 42.3 billion in the fourth quarter of 2013. For the full year 2014, adjusted earnings were NOK 136.1 billion compared to NOK 163.1 billion in 2013.

Today, the company also presents its Capital Markets Update, reducing organic capital expenditure from USD 20 billion to USD 18 billion in 2015, stepping up its improvement programme by 30% to USD 1.7 billion per year from 2016, and expecting organic production growth of 2% to 2016 and 3% from 2016 to 2018. Statoil proposes to the Annual General Meeting a fourth quarter dividend of NOK 1.80 per share, with the intention to pay a flat dividend in the first three quarters of 2015.

"Statoil's quarterly earnings were affected by the sharp drop in oil prices. Our net income was also impacted by specific accounting charges. Underlying performance and cash flows were solid in 2014, supported by profitable growth, strong operational improvements, and solid marketing- and trading results. Our financial position is robust, and we maintain a stable dividend. Through our significant flexibility in our investment programme we are well prepared for continuous market weakness and uncertainty," says Eldar Sætre, president and CEO of Statoil ASA

On 4 February the Statoil board of directors appointed Eldar Sætre as Statoil's new president and CEO. Sætre has been acting as president and CEO since October 2014, and assumed the role with immediate effect. He has 35 years of experience from Statoil.

Adjusted earnings in the fourth quarter of 2014 were NOK 26.9 billion, compared to NOK 42.3 billion in the fourth quarter of 2013. The 36% reduction in the quarter is mainly caused by the significant drop in the liquids prices. In addition, lower European gas prices and increased depreciation and operating costs contributed to the decrease in adjusted earnings. Strong operational performance on the Norwegian Continental Shelf (NCS) as well as a positive exchange rate development (NOK/USD), improved refinery margins and increased volume of liquids sold counteracted the decrease.

Adjusted earnings after tax in the fourth quarter of 2014 amounted to NOK 4.3 billion, down from NOK 11.0 billion in the same period last year. Adjusted earnings after tax were impacted by an effective tax rate of 84% in the fourth quarter compared to a normal level around 70%. The high effective tax rate in the quarter was mainly due to expensed exploration costs with limited tax protection.

Statoil's reported net income for the fourth quarter in accordance with IFRS was negative NOK 8.9 billion. This represents a decrease from the reported positive NOK 14.8 billion in the same period in 2013 and was due to net quarter specific accounting charges of NOK 18 billion. These charges were mainly due to impairment losses related to Statoil's international operations and various exploration assets, partly offset by gains from sale of assets.

"We continue to deliver in accordance with our cost and capital efficiency programmes. Our operational efficiency has been high, our work to improve safety continues to show good progress, and our project development portfolio is progressing as expected," says Sætre.

Equity production was 2,103 mboe per day in the fourth quarter of 2014, compared to 1,945 mboe per day in the same period in 2013. The increase was mainly due to start-up and ramp-up of production on various fields and higher production regularity compared to the same period last year. Expected natural decline and reduced ownership shares from divestments partly offset the increase. The annual equity production outside of Norway ended at a record high of 743 mboe per day.

Statoil reported cash flow from operations in 2014 of NOK 209 billion before taxes paid and working capital items. At the end of the year, Statoil's net debt to capital employed was 20%. Organic capital expenditure was around USD 20 billion in 2014, in line with the guidance for 2014.

Statoil maintained strong project execution through 2014. Gudrun and three fast-track projects came on stream on the NCS, and production was initiated from the partner-operated Jack/St. Malo project in the US Gulf of Mexico during the fourth quarter. On 3 January 2015, the Valemon field in the North Sea came on stream.

Statoil was among the leading explorers also in 2014. The company added 540 million barrels of oil equivalents to the resource base from exploration in 2014. Statoil reported a reserve replacement ratio (RRR) of 62% in 2014. Organic RRR was 96%, which is a reduction compared to 2013, however, on a satisfactory level. The average three-year replacement ratio was 117% at the end of 2014.

In the fourth quarter Statoil entered into an agreement to reduce its ownership in the non-operated US southern Marcellus onshore asset to 23% for a cash consideration of USD 0.4 billion. The transaction was closed in the first quarter of 2015. For the full year Statoil has announced transactions with proceeds of more than USD 4 billion, including the divestments of assets on the NCS and a sale of Shah Deniz in Azerbaijan.

The serious incident frequency (SIF) was 0.6 in the fourth quarter of 2014 compared to 0.7 in the fourth quarter of 2013. For the full year, the SIF improved from 0.8 in 2013 to 0.6 in 2014.

Capital Markets Update

At today's Capital Markets Update (CMU), Statoil announces plans to address the current environment forcefully while continuing to invest in high-quality projects.

"Last year we outlined the plan to strengthen Statoil's competitiveness. Our strategy remains firm and we now reinforce our efforts and commitment to deliver on our priorities of high value growth, increased efficiency and competitive shareholder returns", says Eldar Sætre.

The plans include:

• Grow organic production annually by 2% to 2016 and 3% from 2016 to 2018
  
  
• Reduce organic capital expenditure from USD 20 billion to USD 18 billion in 2015
  
  
• Step-up the improvement program by 30% to USD 1.7 billion from 2016
  
  
• In total, the plans will provide total cash improvements of USD 5 billion
  
  
• Preparedness to manage material portfolio flexibility to secure free cash flow covering dividend and operate within 15-30% net debt across a broad set of price scenarios
  
  
• Proposed fourth quarter dividends of 1.80 NOK per share, with the intention to maintain a flat dividend for the first three quarters of 2015

Cash improvement of USD 5 billion

Statoil presented a comprehensive improvement programme at the CMU in February 2014, targeting annual savings of USD 1.3 billion per year from 2016. This year, Statoil will step up its efficiency program by 30% with a target to realise USD 1.7 billion in annual savings.

The organic capital expenditure in 2015 will be reduced to USD 18 billion, a USD 2 billion reduction compared to previously guided level.

"We have improved our production efficiency on the NCS by more than five percentage points, adding 50,000 barrels per day - equivalent to more than USD 1 billion in cash flows on an annual basis. Together with the annual efficiency gains from 2016 of USD 1.7 billion and reduced capital expenditure and exploration expenditure of USD 2.2 billion, we see a pre-tax cash improvement of around USD 5 billion. This corresponds to reduced cash neutrality by around 30 USD per barrel from 2016," says Sætre.

Balancing growth and return

Statoil expects to grow the organic production annually by around 2% from 2014-16, and by 3% from 2016-2018.

"Based on our sanctioned portfolio of projects, we will continue to deliver high value production growth towards 2018. We maintain significant flexibility in our broad portfolio of operated assets, and we are prepared to use this flexibility to deliver on our priorities. Most of this flexibility will be maintained through 2015, however, Statoil will continue to invest in high quality assets, and plans to submit the Plan for Development and Operations (PDO) for Johan Sverdrup in February 2015," Sætre says.

Statoil's portfolio of onshore and non-sanctioned projects holds significant optionality, and more than one third of the capital expenditure in 2017-18 is uncommitted. By utilising the flexibility in the portfolio, Statoil will be able to deliver free cash flow to cover dividend in 2016 at an oil price of USD 100 per barrel, 2017 at an oil price of USD 80 per barrel and in 2018 at USD 60 per barrel.

Cash flow growth from producing assets combined with the flexible investment programme enables Statoil to maintain the indicated net debt of 15-30% at different price scenarios towards 2018.

Capital discipline and distribution

"Our financial position is robust, we maintain our financial capacity as well as a solid balance sheet and we intend to honour our commitment to our shareholders, providing a competitive dividend," says new CEO Eldar Sætre.

The Statoil board of directors proposes a dividend of NOK 1.80 per share for the fourth quarter of 2014, subject to approval at the Annual General Meeting in line with the authorisation from May 2014. The annual dividends for 2014 amounted to NOK 7.20 per share, an increase from NOK 7.00 in 2013.

Key events since third quarter 2014:

• Progressing Johan Sverdrup: The partnership has agreed to recommend Statoil as operator of all phases of the field. Jacket and engineering contracts have been awarded and a Plan for Development and Operation (PDO) will be submitted to the authorities in February 2015.
  
  
• New projects on stream: Valemon came on stream in the North Sea on 3 January 2015. First oil from Gulf of Mexico Jack/St. Malo project on 2 December 2014.
  
  
• Developing new projects: Stampede development sanctioned in Gulf of Mexico, development plans for Gullfaks Rimfaksdalen and Peregrino Phase II submitted.
  
  
• Optimising projects: Postponing the planned date for DG2 for Snorre 2040 project from March 2015 to October 2015.
  
  
• Portfolio optimisation: Entered into an agreement to reduce the ownership in the non-operated US southern Marcellus onshore asset from 29% to 23% for a cash consideration of USD 0.4 billion, the transaction was closed in the first quarter of 2015. The transaction with Wintershall was completed in the fourth quarter of 2014 and a gain of NOK 5.9 billion was recognised.
  
  
• Exploration: Time-out in Kwanza exploration drilling program, as a consequence a rig contract was cancelled. Added 15 licences on the NCS, 12 licenses on UKCS and 4 new permits in New Zealand. The suspension periods for the drilling rigs COSL Pioneer, Scarabeo 5 and Songa Trym were extended.
  
  
• Debt capital market transactions: USD 3 billion issued in November 2014.
  
  
• GE and Statoil: Ambitious new collaboration to accelerate development of sustainable energy solutions.

Further information from:

Investor relations:
Peter Hutton, Senior vice president Investor relations,
+44 7881 918 792 (mobile)

Morten Sven Johannessen, Vice president, Statoil, USA
+1 203 570 2524

Press
Jannik Lindbæk jr., Vice president Media relations,
+47 977 55 622 (mobile)

This information is subject to the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.

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