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For Statoil, Less Oil Production, More Shareholder Value

Due to these massive asset sales, the company continued paying dividends despite aggressively growing its capital expenditure program. Statoil's capital expenditures climbed more than 70% since 2009, to record levels of $19 billion in 2013.

The company is now putting an end to this momentum. In other words, Statoil's annual capital expenditure will increase by just 5.3% in 2014 to $20 billion. Then it will remain at this level through 2016.

Then this will be followed by an aggressive $1.3 billion per year cost cutting program from 2016 onward. Meanwhile, Statoil will move forward with more asset sales, which will support its cash flows.

Meanwhile, Statoil is delaying the development work on some of its biggest projects. Last year, Statoil postponed the development of its $7 billion Bressay heavy oil field project at the North Sea. Its $15.5 billion Johan Castberg project in the Arctic Barents Sea, which was already delayed, is now looking even more doubtful after some recent setbacks.

With the delays and drops in capital expenditure, Statoil has now pushed its 2020 production target, of producing 2.5 million barrels a day, further by 3 to 4 years.

With massive asset sales and a modest increase in capital expenditure, the company expects its daily output in 2014 to fall to 1.88 million barrels.

On the other hand, the reduction in capital expenditure, divestitures and delays will help the company  improve its liquidity.

As per its recent quarterly results, Statoil gets a fifth of its output from North America. The company is one of the biggest players at the Bakken, Marcellus and Eagle Ford shale plays in the U.S. The increase in the U.S. oil and natural gas prices will improve Statoil's profitability.

Currently, the Norwegian state owns 67% of Statoil. However, according to Bloomberg, the newly elected conservative government could reduce the stake to as low as 51%. Any news of reduction in the government's stake in Statoil will be welcomed by the market. If and when that happens, that too could turn into a positive catalyst for shareholders.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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