Update: Statoil Earnings

| About: Statoil ASA (STO)


The oil and gas giant missed earnings estimates for 2Q by over 5%.

We are still bullish on Statoil’s long-term prospects given its technology and solid dividend.

We didn’t anticipate the slight earnings miss, but believe the market has overreacted.

Statoil (NYSE:STO) managed to post 2Q earnings earnings of $0.52 a share (compared to consensus of $0.55). Its 2Q operating income was 7% lower y/y. Production was also down 9% y/y for the quarter. Shares are now down 5% over the past couple of weeks.

Since we first covered Statoil last August, shares are up 33%. Shares are now trading at 10.9x forward earnings (versus the 8.2x last year). But that's still at a discount to many of the other Supermajors. As we noted last year,

The oil and gas giant is not only tops when it comes to squeezing the most out of its assets, but it's also strong on the exploration front, having discovered over 20 new wells this year...the oil and gas company is utilizing a variety of methods for improving the ability to recover resources. These methods include infill drilling, deep/extended reach wells and water alteration gases. Specifically, Statoil's improved oil recovery methods include horizontal wells (33% of activity), water & gas injection (25%), chemical injection (10%), with the remainder involving various subsea compression methods.

With 2Q earnings, management noted that the decline in production was due to lower gas prices in Europe and asset sales. And with new projects in Skarv, Norway, and the Marcellus and Eagle Ford shales, ramping up, the company notes that it's on track to meet full year 2014 production guidance.

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