Statoil's Earnings Fall Back Into the Loss Column in Q2

By Markets Fool.com

Image source: Statoil ASA.

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After posting a profit last quarter that came as a pleasant surprise, Statoil ASA(NYSE: STO) wasn't able to keep the momentum going this quarter as it fell back into the loss column. Despite the lackluster results, the company did show some slightly promising signs as it continues to cut costs and focus on getting the most out of its existing portfolio rather than trying to grow its way out of trouble. Here's a quick snapshot of what happened at Statoil this past quarter.

Statoil's results: The raw numbers

Results* Q2 2016 Q1 2016 Q2 2015
Revenue $10,895 $10,115 $17,422
Net Income ($302) $611 $866
Earnings per share ($0.10) $0.19 $0.27
Cash flow from operations $3,026 $3,386 $5,476

*In millions, except per share data. Data source: Statoil earnings release.

It's a little discouraging to see Statoil's results slip from the prior quarter while there are several signs from the oil and gas market that would suggest things should be getting better for producers. Even though the company's realized price for oil and gas improved from $29 per barrel of oil equivalent (boe) to $39 per boe, the company's overall production declined by 100,000 boe per day. That much production offline and a minor dip in downstream earnings was enough for the company to fall back into the red.

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Data source: Statoil earnings release, author's chart.

The good news that can be pulled from this past quarter is that production costs continue to decline and the company appears to be right sizing its capital spending. Production and exploration costs declined by about $350 million compared to this time last year.

What happened with Statoil this quarter?

  • Production for the quarter was 1.96 million boe per day, it was a modest slip from the first quarter, but it was a 5% increase from this time last year. Statoil's management stated that the large gain was from further ramp up of new projects as well as new projects coming online in the quarter.
  • On April 29, there was a helicopter accident that killed 13 workers at one of Statoil's offshore platforms. As a result, the company has commenced on a comprehensive safety review that is expected in the third quarter.
  • The company exchanged its interest in theEdvard Grieg gas field to Lundin Petroleum in exchange for a greater equity stake in the company. Statoil now owns 20.1% of shares outstanding.
  • As a means to conserve cash, the companyintroduceda scrip dividend program this quarter. About 43% of all shareholders elected to take payment of the dividend in shares instead of cash. Thedividend amount has not changed since the same quarter last year, but the scrip dividend has reduced cash outlays by about $330 million.
  • Management reduced its capital expenditure guidance from $13 billion to $12 billion.

What management had to say

Not much has changed since the company had its annual shareholders meeting back in May, but CEO Eldar Saetre wanted to remind investors that the company is looking to drive value to shareholders not through large production increases, but through capital discipline and cutting operational expenses at its existing assets:

We maintain our production guidance, expecting annual organic production growth of around 1% from 2014 to 2017. Strict prioritisation, good results from our improvement programme and more effective drilling operations allow us to lower our 2016 capex and exploration guidance.

10-second takeaway

Statoil took a couple of hits on the path toward greater profitability this quarter, but the company is keeping its head down and focusing on keeping its capital budget in check and cutting operational costs. The company may be considered an integrated oil and gas company, but it's heavily weighted toward exploration and production, so the biggest cure for what ails Statoil right now are higher oil and gas prices.

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

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