Statoil ASA (STO)

[OilStockReport]

A little earnings and dividend update.

Statoil earned NOK 16.1 billion ($2.99 billion) in the first quarter of 2011. This gives the company a quarterly EPS of NOK 5.02 ($0.93). This is a 45% increase from the NOK 11.1 billion that Statoil earned in Q1 2010. Production volume declined by 6.23% from 2,102 mboe/day in Q1 2010 to 1,971 mboe/day in Q1 2011. The increase in net income was caused by higher prices for both oil and gas as well as a NOK 5.3 billion gain on a 40% sale of the company’s stake in the Kai Kos Dehseh oil sands. Statoil expects production to return to the 2010 level for most of this year as the production decline was largely attributable to the Gullfaks Field not producing at full capacity along with operational issues at a few fields. CEO Helge Lund discussed these issues in the company’s Q4 2010 Earnings Call. None of these operational issues are systemic although they may still be a drag on the share price. As production will increase steadily as these operational issues are resolved, profits should follow. An investor willing to bet on the resolution of these issues could have an opportunity to profit.

Statoil’s average selling price was $100.90 per barrel of oil in Q1 2011. This is a substantial increase from the average price of $74.00 per barrel that the company had in Q1 2010 but it is unlikely that this is a surprise to any oil investor. Statoil expects to return production back to around 2010 levels during this year and then grow production at a CAGR of 3% until 2020 beginning in 2012. This should lead to steadily increasing cash flows even assuming a stable price for oil at the current level. Any increase in oil price will only amplify the increase in cash flows.