Statoil Asa
08/09/2005
 High energy prices, improved refining margins and rising production levels all contributed to another stellar quarterly result from NYSE-listed Statoil Asa (US: STO). Second quarter net income increased a robust 55 percent to NOK 6.8 billion (around US$1.0 billion). With crude once again trading above US$60 a barrel, we expect the oil major's earnings will remain strong throughout 2005.
The Exploration and Production (E&P) Norway group increased income before financial items, income taxes and minority interest (adjusted income) by 47 percent to NOK 17.1 billion. Contributing significantly to this result were higher realised oil and gas prices. Future volumes in the group will be driven by a heavy development programme on the Norwegian continental shelf.
Statoil's International E&P business was a standout performer. Adjusted income at the division surged ahead 147 percent to NOK 2.2 billion. Profitability was bolstered by strong oil prices combined with a 77 percent increase in production to 175,000 boepd.
Longer-term Statoil is busy furthering international diversification. The recent acquisition of EnCana Corporation's Gulf of Mexico assets and last month's collaboration agreement with Gazprom and Norsk Hydro to map oil and gas resources in the far north offer tremendous potential.
Total oil and gas production at Statoil rose 5 percent to 1.1 million boepd for the quarter. Commitment to maintaining production was illustrated by a 33 percent increase in capital expenditure to NOK 21.9 billion. We were also heartened by the group's return on average capital employed, a key measure of profitability, which rose to 25.5 percent from 19.0 percent in 2004.
We believe that Statoil will continue to perform strongly within the current environment of high oil prices, robust refining margins and modestly rising production. Long-term profitability will be driven by the group's active E&P programme, particularly at the International division where several exciting projects are progressing. With a prospective price earnings ratio of just over 11 times and a dividend yield of nearly 4 percent, Statoil offers excellent value in our opinion.
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