StatoilHydro: Bullish on Exploration

Jun. 3.08 | About: Statoil ASA (STO)

StatoilHydro ASA (NYSE:STO), the Norwegian integrated oil company, saw net income rise 62% in the first quarter compared to 2007 as realized oil prices rose 42% year-over-year. The company also surprised on Wall Street estimates by 34.29% for the quarter. StatoilHydro has a 2008 P/E of 11.05.

Full Analysis

StatoilHydro ASA is an integrated oil company headquartered in Norway. StatoilHydro is the result of a merger in October 2007 between Norway's Statoil and Hydro's oil and gas division.

The Norwegians came into their own in the energy sector thirty years ago after substantial oil finds in the North Sea. The combined company is now international in reach, with operations in 40 countries.

StatoilHydro, a Zacks #1 Rank (Strong Buy), is the world's largest energy operator in waters more than 100 meters deep. The company produces, on average, 1.7 million barrels of oil equivalent per day. It has proven reserves of more than six billion barrels of oil.

StatoilHydro Beats First Quarter Consensus Estimates by 34.29%

On May 13, StatoilHydro reported first quarter earnings that surprised on Wall Street estimates by 34.29%, or 24 cents. The company reported 94 cents per share compared to analysts' estimates of 70 cents per share.

Net income was NOK 16.0 billion, or NOK 5.01 per share, compared to NOK 9.9 billion, or NOK 3.05 per share, in the year-ago period. The company said the increase was due mainly to a 42% increase in realized oil prices, higher natural gas prices, lower write-down of inventories, gains from asset sales and currency gains as compared to 2007.

STO is bullish about future exploration in 2008.

"Several new fields have been added to the StatoilHydro upstream production portfolio since the turn of the year, for example Volve and Gulltopp on the Norwegian Continental Shelf [NCS] and the deepwater Gunashli field in Azerbaijan," said Helge Lund, StatoilHydro's chief executive.

"We continue to build long term growth through an extensive exploration program and active business development. We have signed an agreement to take over the Peregrino project in Brazil. This has strengthened our position in an exciting upstream region," he said.

Consensus Estimates Rise for 2008

As crude and natural gas prices continue to trade at high levels, brokerage analysts have been raising estimates for the full year. Consensus estimates for the year are up 11% in the last thirty days as three out of four covering analysts raised estimates to an average of $3.51 from $3.16 per share.

Analysts also expect year-over-year earnings growth in 2008 of 38.09%.

StatoilHydro has a forward P/E of 11.05. Its price-to-book is 2.77. The company has an outstanding five year average return on equity [ROE] of 38.07%.

STO is also distributing some of its excess cash to shareholders as a dividend. The company just announced a dividend of NOK 8.50 per share, of which NOK 4.30 was a special dividend. This translates to $1.659 per share in US dollars. The dividend was paid to shareholders of record as of May 20. Comparatively, STO paid a dividend of $1.527 per share in May 2007.