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Executives

Hilde Nafstad – SVP, IR

Helge Lund – President and CEO

Torgrim Reitan – CFO

Analysts

Paul Spedding – HSBC

Brendan Warn – Jefferies International

John Olaisen – Carnegie

Trond Omdal – Arctic Securities

Statoil AG (STO) Q4 2010 Earnings Conference Call February 9, 2011 7:30 AM ET

Hilde Nafstad

Ladies and gentlemen, welcome to the Statoil Presentation both to the audience here at the Brewery in London and to the audience following the presentations on web or by phone. My name is Hilde Nafstad and I am the Head of Investor Relations.

Please note the emergency exits on both sides of this room, one in the back of the room and one right behind me. Today’s event can be followed by webcast. The webcast and transcript of the event will both be made available later. Today’s program is split in two. First, Statoil’s Chief Executive Officer, Helge Lund and Chief Financial Officer, Torgrim Reitan will give a short Fourth Quarter and 2010 Earnings presentation. At 1:30, London Time, we will start our Strategy Update with our CEO, CFO and our Executive Vice President for Development and Production Norway, Øystein Michelsen.

Each of the two blocks of presentations, first, the Fourth Quarter 2010 and then later the Strategy Update will be followed by a Q&A session. Our web audience should observe the phone number on the page where you’ve accessed the webcast. This is the number to use for the Q&A. The first Q&A session is devoted exclusively to questions related to the fourth quarter and to the full-year 2010. At 6:30 London Time, Statoil published results for the fourth quarter of 2010. We also published all the presentations you are going to see today.

Go to our website statoil.com and follow the link from the front page if you want to open or download these now. Can I ask you both here in London and all who download presentations to carefully study the forward-looking statements at the end of the presentation. And now, it is my privilege to introduce our CEO and President, Helge Lund.

Helge Lund

Thank you Hilde, and welcome to all of you. It’s good to be here. It’s also good to be finally able to talk about 2010, but maybe even more importantly to later talk about the future for Statoil. As Hilde said, the focus of this session is primarily fourth quarter and we look at our plans moving forward in the session later. 2010 has been a very active strategic year with good strategic progress for Statoil. And we have also been active in terms of portfolio management. We have matured our portfolio. Five new fields have been set in production, and we have sanctioned another nine projects.

We are now also accessing high potential exploration acreage through now the nomination of Statoil by Sonangol as a partner and operator at several pre-salt opportunities in offshore Angola. We have also throughout 2010 been strengthening our unconventional US gas position by accessing yet another low breaking breakeven field or area in the US. I think also in terms of strategic significance, it is important that we through this year have been able to list successfully the Statoil Fuel and Retail and thereby clarified even further the strategic profile of Statoil as an technology driven upstream company.

I think also that you have noted that we have been active with our international portfolio by the farm down to two industrial partners of 40% on the oil sands assets in Canada and also in our offshore asset in Brazil on Peregrino and created I think very good value for Statoil and our shareholders. As a consequence of the active management or the portfolio over the last few years, we are now improving on our reserve replacement ratio and for the year 2010, it is now up to 87% for the year in total.

During 2010, we have also maintained a very high activity level at Norwegian [ph] continental shelf, and I think securing the foundation for sustained high-level value creation at our home – in our home market. Production has been very strong and stable in the first part of the year, but during the second half of the year we produced less than expected and I will come back to the reasons for that later in my presentation. I think although significant aspects are 2010 results has been that we continue to improve on safety and on HSE, we demonstrate good cost control in our operations particularly in Norway. We delivered strong cash flow and continued to show that we care about also the direct dividend to our shareholders and a proposal for the Board of Directors is to pay NOK 6.25 per share for 2010.

As I said, we produced at a high-level during the first half of 2010, demonstrating the capacity of our portfolio. And I was especially pleased with our operational performance and the stability of our performance in that period. And we were able therefore to utilize most of our capacity. But during the second half of the year, we experienced specific operational issues taking the annual production to a lower-level than we expected earlier in the year.

As we told you at the third quarter presentation in Oslo, the Q3 was impacted by planned maintenance especially also this year impacting our gas delivery system. This combined with specific operational issues at our Gullfaks field, lower than expected production permit on Ormen Lange going into Q4, we also talked about your Q3 presentation, that we decided to temporary shutdown some production wells on the Gullfaks south field and on the Kvitebjørn field. And that was to make sure that we preserve the reservoir and the production capacity for the longer run.

The result of this as you know already now, also that we took down the production guidance from 1.925 million barrels per day and 1.975 barrels today the range down to 1.9 million barrels per day. In the fourth quarter, we saw slower than expected buildup of production from the massive turnaround program we had in Q3. This combined with certain operational issues at some of our partner operated assets in Angola and Azerbaijan and also some issues at the NC asset led to a production level that was lower than we had anticipated at the third quarter. So this took us for the year down to 1.888 million barrels for the year in total.

We are now working with all our teams to make sure that we correct these specific operational issues. I do not see that this is systemic issues although some of them as I will speak to later today will influence production in 2011. If you look at the results a little bit more in detail, we delivered strong cash flows and good financial results in 2010. Statoil’s fourth quarter 2010 adjusted earnings was NOK 40 billion – NOK 40.8 billion and that is up 19% from last year. And for the year 2010, the adjusted earnings was NOK 142.8 billion, up 9%.

This was primarily driven by oil prices, higher oil prices but partly offset by lower gas prices for the year as you know there is six months delay in the gas prices compared to how the oil market is working, and also lower volumes. I please to again show that we are demonstrating good cost control and the costs in our operations are largely in line with last year.

A few comments on the different business area, E&P Norway delivered yet another strong financial results underpinning the strategic importance – financial importance of these great assets for Statoil. And we will later today go through in detail how we would like to develop our position there as we move forward. International E&P continued to build momentum and adjusted earnings increased by 50% year-on-year. Natural gas continued to demonstrate high financial results and significant value creation in a changing gas market.

Marketing and manufacturing is influenced by the poor market conditions for our refineries. Torgrim Reitan, our new CFO will take you much more in detail on some of these numbers later in this part of the presentation. Our performance this year again enables us to pay an attractive dividend to our shareholders. Since the listing of Statoil in 2001, we have always given high priority to dividends. This illustration that you see here does not take into account the fact that we paid special dividends for a number of years so the actual payout ratio was even higher than what you will see here. And the ordinary dividend has increased over the years. The Board of Directors as I said has decided to propose a cash dividend of NOK 6.25 per share for the Annual General Meeting which will take place in Stavanger on the 19th of May.

This implies that the ordinary dividend will grow by more than 4% from last year and it implies the payout ratio of 52% of net income. Let me now give the floor to our new CFO, Torgrim Reitan who will expand on the quarter and also on the financials. Thank you.

Torgrim Reitan

Thank you, Helge. As many of you know, I took up the position as CFO only one month ago. And it’s good to finally get started in my new job. It’s a privilege to step up as a CFO in a company this financially solid and with clear growth opportunities. I do like details, but I am not going to go through all the numbers that you’ll find in the MD&A, I will go through the highlights and the key drivers of our results.

Our quarterly result is strong. And as you know, we have large exposure to the changes in oil and gas prices. So the increasing prices have had a significant impact. But we cannot be fully satisfied, as we did not utilized the entire production capacity in the second half of the year. However, the increase in oil and gas prices more than out-weighted the negative impact from reduced volumes in the quarter. And we see an improvement both in reported and adjusted results, compared to the fourth quarter in 2009.

The reported net income increased by 37% from fourth quarter of 2009 and the adjusted earnings increased by 19%. The main causes to the change in earnings is the following. The increase in oil and gas prices contributed positively by NOK 12 billion. The decrease in production caused reduction of NOK 4 billion. Exploration had a negative impact of NOK 1.6 billion while refining yielded better results compared to last year. The illustration behind me takes you from our reported net income to adjusted earnings after tax.

The adjustments in the quarter amount to NOK 2 billion. The most important one is related to renegotiation of a regasification capacity at Cove Point. The length of that contract is halved and the commitment in the remaining period is also reduced. We have therefore reversed NOK 2.7 billion on the earlier provisions related to the contract. You’ll find more details in the MD&A. Furthermore, our operating expenses they were reduced by 4% quarter-on-quarter while the selling, general and administrative increased due to ramp-up of new production.

We spent more on exploration and we had two expensive wells that we expensed in the quarter. That is the Krakatoa well in the Gulf of Mexico and the (inaudible) well on the Norwegian Continental Shelf. The financial items, when we adjust for foreign exchange and interest rate derivatives was NOK 0.0 billion. In other words close to zero and exactly what you should expect. The tax rate was 74% in the fourth quarter both for reported earnings and adjusted earnings. The main explanation for the relatively high tax rate in the quarter is the segment tax within International E&P which in this quarter was around 80%.

And this is related to provisions and expensing of the Krakatoa well, I just mentioned. We have earlier guided on a segment tax rate internationally at 40% to 45%. Adjusting for the provisions across the countries where we do not have tax yield for accounting purposes, the guiding is still valid. Okay, let’s then turn to the full-year 2010. The reported net income more than doubled from 2009 to 2010. The adjustments for the full-year amount to NOK 5.5 billion with impairment losses related to Mongstad and Corrib are the main contributors.

The adjusted earnings after tax increased by 11%. The increase in oil price had of course a significant effect while the gas prices for 2010 actually was lower than in 2009. And this is due to that a majority of our gas sales are on long-term oil link contracts where we have a lag in the pricing. So the 2009 gas price was heavily impacted by the very high oil prices in 2008. The total price effect explains NOK 30 billion of the increase from 2009 – from 2009. Reduced production contributed negatively by NOK 13 billion and adjusted exploration expenses were NOK 4 billion higher in 2010 than in 2009.

We completed 39 wells in 2010 and that includes extensions. And we had 25 – 21 wells where we defined as discoveries. Total adjusted exploration was NOK 17 billion and that was somewhat above our guidance given last year. We reduced our adjusted operating expenses by NOK 1 billion last year, and we had a reduction in the combined operating expenses and SG&A. And that is despite that we have our stepping up production in new fields, and we now we have more fields under operations. And this is due to of course improvement initiatives and also from lower production from 2010 to 2009.

The tax rate was around 72% for 2010 based on reported earnings and 71% based on adjusted earnings. I would also like to mention that Statoil Fuel and Retail is still consolidated 100% in our accounts due to that we own more than 50%. And Statoil Fuel and Retail is reported as a separate segment. Let me then turn to the cash flow. Cash generation has been strong throughout the year. And the cash flow from operations has been more than sufficient to cover taxes, investments and dividends.

Our cash flow for 2010 is of course largely impacted by increased oil prices. And we generated NOK 190 billion in cash from underlying operations, and we paid NOK 92 billion in taxes. Our cash flow to investments was NOK 76 billion and ended around what we told you one year ago. Since the closure of the Canada transaction and the Peregrino transaction belongs to 2011. The proceeds from these will be part of the 2011 cash flow. However we have received some premium – prepayments from the transactions already. The Canada transaction that was by the way closed in January. In 2010 we paid NOK 19 billion in dividends or NOK 6 per share.

During 2010 we also took advantage from favorable market conditions in the debt markets and issued new debt of $2 billion. Our net debt to capital employed ended at 25% at year-end and that is down from 27% one year ago. So this leaves us with a very strong financial position at the end of 2011. And I’m very pleased to step up as the CFO for a company in this shape.

So 2010 in brief, strong results and cash flow, high production in the first half of the year with temporary operational issues in the second half, continued portfolio optimizations resulting in value creating optimizations – value creating transactions and many projects underway that we will discuss later today. So thank you for your attention. And then I will leave the floor to Hilde, who will lead us through the Q&A session.

Hilde Nafstad

Thank you. As Torgrim said we will now turn to the Q&A session. The session will last for approximately 15 minutes. Let me just repeat and emphasize that in this session only we’ll take questions related to 2010. You will have the opportunity to ask forward-looking questions in the next session. Please limit yourself to one question at a time. For the audience in the room, please give me a signal if you have a question. Microphones will be passed. For the audience on the phone, please listen to the operator’s instructions regarding asking questions which will come right now. Operator, can you please give us the procedure for questions?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

Hilde Nafstad

All right. Do we have any questions from the audience? Yes, we have one over here.

Paul Spedding – HSBC

Paul Spedding from HSBC. I wonder if you could give us an indication as to how your production ended the year, because clearly Q4 was impacted by various unusual outages. And I was just hoping to get a better picture for what the quarter could have looked like if things have gone more willing to plan.

Helge Lund

We had in the third quarter results we gave an updated guiding on 1.9 million barrels a day. And that was taken into account. The knowledge we had at that point in time as such, we ended slightly below that number for the year-end. And that was related to operational issues in the partner operated – part of the portfolio Angola and Azerbaijan. And we also had some issues related to gas processing on the Kollsnes. And we had (inaudible) issues as well in which we put out there on the news. So I think if you add those you have the main contributors to the production in the fourth quarter.

Hilde Nafstad

Another question. Yes.

Brendan Warn – Jefferies International

Thank you. Its Brendan Warn from Jefferies. Just on CapEx, an backward looking question in terms of can you give us any clarity or breakdown on the CapEx in terms of what was spent on new developments versus the same business and also split from Norwegian Continental Shelf and International and just whether any of the under spend in ‘08 and ‘09 has led to some of the production issues?

Helge Lund

Investments for 2010 is broadly split equally between Norwegian Continental Shelf and Internationally. And generally we spent around 10% in related to (inaudible) activities, refinery upgrades and new energy. So there you have the broad split. I would say if you look into the international investments, those are heavily tilted into growth prospects. When we look in Norwegian investments, a significant part is used to grow that part of the business investing in new projects, but also a significant part to improve the valuation and improve the performance of the already existing productions. And we would talk more about this in the afternoon session.

In terms of the second part of your question, there is no relationship between the slightly lower CapEx and the production shortfall in the fourth quarter. That is also you have to be very specific points that Torgrim already mentioned.

Hilde Nafstad

Okay, can we have the next question from the audience?

John Olaisen – Carnegie

This is John Olaisen from Carnegie. A question on the production permit on Ormen Lange. You didn’t get an extension or expansion of production license for that field in 2010. Could you elaborate a little bit on why is that dispute on the optimal production with the reservoir characteristics or etcetera, or why didn’t you get the production permits on that?

Helge Lund

Well the explanations are seldom given for that. So we have to take what we get and but we do not anticipate any general change when it comes to policies related to production permits.

Hilde Nafstad

Next question.

John Olaisen – Carnegie

But if I may just a follow-up on that one, for next year it seems like Troll, the biggest gas field in Norway is experiencing the same issue. Is that a reservoir issue or it’s just – what’s the real reason behind that, it was just like an black box for us.

Helge Lund

Well again they do not normally give explanations for production permits but it’s true that for the next year we have a lower production permit for the next gas field than we have had in the past and that is also partly explaining which we will cover later today a lower production in 2011.

Hilde Nafstad

Are there any more questions here in London. If not, yes we have one over here.

Trond Omdal – Arctic Securities

Trond Omdal from Arctic Securities This year you cut CapEx by close to 10% while since for instance one of your competitors, shell maintained their CapEx and they have been rewarded both by the market and also stronger production performance. Is it related to that they have a stronger balance sheet difference in macro view or the opportunities that has led due to that and, you think still it was a good choice to cut that CapEx?

Helge Lund

Well as you have seen in the last few years we have given our size and the quality of our portfolio we have quite high CapEx level, and we will discuss the CapEx level moving forward. We are actually pretty proud of the fact that we were able through the financial crisis to handle the balance sheet in a way that protected the majority of our investment program both in Norway and Internationally. And it’s not decisive strategy to cut back on CapEx. It’s more of timing issues and when we have been able to mature the different prospects.

Hilde Nafstad

Any further questions in London? Operator, do we have any questions on the phone lines?

Operator

There are no questions on the phone line.

Hilde Nafstad

All right. Then I think we will close this morning’s session – or this first session. We will now take a break and then we will continue at 1:30 for the capital markets update. So please get back promptly. Thank you very much.

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