Statoil ASA (STO)

Q2 2010 Earnings Call

July 29, 2010 02:30 pm ET

Executives

Lars Sørensen - Head of IR

Eldar Sætre - CFO

Analysts

Jason Kenny - ING

Oswald Clint - Sanford Bernstein

Jon Rigby - UBS

Irene Himona - Exane BNP Paribas

James Hubbard - Morgan Stanley

Lucy Haskins - Barclays Capital

Barry MacCarthy - Royal Bank of Scotland

Michael Alford

Kim Fustier - Credit Suisse

Presentation

Lars Sørensen

Ladies and gentlemen welcome to Statiol's webcast and telephone conference on our second quarter 2010 earnings. I am Lars Sørensen; I'm the Head of Investor Relations. This presentation is a webcast presentation and is broadcasted live from our offices in Oslo. We can be followed on the web from statiol.com or by calling into the conference by phone. You will find dial-in numbers on our website.

This morning at 7.30 AM Central European Time we announced our results for the second quarter 2010 and press release on the results were set through wires and to the Oslo Stock Exchange. The quarterly report and today's presentation pack as usual can be downloaded from our website statiol.com. On the front page of statiol.com there is a link directly to the presentation pack.

Can I ask you please to take special notes on our usual forward-looking statements which are the slides on the last page of the presentation set? After the presentation, we will open to questions. Please observe that you will have to use a phone line to ask questions, questions cannot be asked directly from the web. The dial-in number is on the website. The operator of this conference call will revert to procedure of asking questions over the phone immediately before the Q&A session starts after the presentation.

It is then my privilege to welcome Statiol's Chief Financial Officer, Eldar Sætre, who will now take us through the second quarter earnings presentation.

Eldar Sætre

Thank you, Lars. Good afternoon ladies and gentleman and welcome to this second quarter earnings and presentation for Statiol. After a promising start of 2010 we have now seen yet another challenging quarter regarding both the global economy and financial markets and we have been reminded that great uncertainty still remains when it comes to the pace of the world economic recovery.

However Statiol has delivered another set of good results this quarter. Operationally, we have had a strong quarter with high production despite the shutdown of the production on the Gullfaks C platform, which by the way came back on stream on July 14. We are also getting closer to production start on a number of new fields. Amongst them is the Gjoa field, which you can see, being towed out to the field on the front page of this presentation? We continued our exploration efforts and have made several new discoveries also in this quarter.

Our flexible gas strategy has created significant values by moving volumes from last summer and mainly placing them on the forward curve at considerably higher prices.

Finally, we have had higher than usual impact from non-cash provisions this quarter, which is seen as infrequent and outside of our underlying operations. We have made a cost provision in connection with an onerous contract related to the Cove Point LNG regasification terminal in the US of NOK3.8 billion this quarter. In addition, the market outlooks for our Mongstad refinery have worsened and we have decided to take an impairment of NOK2.9 billion in the quarter.

And now some words about our second quarter earnings. Here we see an overview of our key earnings dealers compared with the same quarter last year which is illustrated at the bottom here.

Our reported net income amounted to NOK3.1 billion compared to zero in the second quarter of last year. And I should then remind you that the reported second quarter results last year was quite exceptional due to a 99% tax rate deriving from the change that we made to use all our functional currency while the tax basis is still being calculated in Norwegian kroner.

The reported net operating income is NOK26.6 billion against NOK24.3 billion last year, which is a 10% increase year-on-year. When focusing on the underlying business performance, we derive at the net adjusted result of NOK36.4 billion in the quarter and this is a 25% increase over last year's NOK29.2 billion. The main contributors were the 32% higher liquids price in Norwegian kroner combined with a 2% increase in entitlement production and this was partly offset by a 12% decrease in average natural gas prices.

The adjustments of NOK9.8 billion were mainly caused by natural gas derivative losses by the provision related to the Cove Point and both of these were in natural gas and the impairment of the Mongstad refinery which I mentioned within manufacturing and marketing.

Reported tax rate this quarter was 88% after adjustments for the effects of tax are in frequent items and net financial items. Our effective tax rate on adjusted earnings amounts to 71% which is in line with our guidance.

Now let's turn to the production numbers for the quarter. Total equity production was 1,957,000 barrels per day this quarter. And this implies 6% growth over last year. The growth primarily came from increase in gas production, which was up 14%, while the overall liquids production was up 1%.

Volumes from the Norwegian continental shelf increased by 6% while equity volumes from outside of Norway grew by 5% this quarter. Entitlement volumes increased by 2% to 1,765,000 barrels per day and this means that PSA effects, so-called PSA effects were 192,000 barrels per day in the second quarter and this is compared to 116,000 barrels per day, the year before, and the increase were mainly due to changes in profit tranches for some Angolan fees and also some one-off positive PSA adjustments that we made in the second quarter of last year.

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