Why Statoil ASA(ADR) (STO) Earnings Fell

Norway’s state-owned oil giant Statoil ASA(ADR) (NYSE:STO) reported its second-quarter financial results on July 25. Let’s take a closer look at why the company’s earnings fell and what its future may hold.

Why Statoil ASA(ADR) (NYSE:STO) earnings fell
Statoil ASA(ADR) (NYSE:STO)’s adjusted after-tax net income for the quarter came in at NOK 11.3 billion, or $1.9 billion, down from NOK 11.5 billion in the year-earlier period, while revenues plunged 26% year over year to NOK 148.3 billion, or $25 billion.

The main culprits behind the decline were decreased oil and gas volumes and lower prices for both natural gas and oil. For the quarter, Statoil ASA(ADR) (NYSE:STO) saw a 5% year-over-year decrease in average realized oil prices, which averaged $93.90 per barrel and an 11% fall in average realized gas prices, which came in at NOK 1.98 per standard cubic meter. The company’s total quarterly production was 59% oil and 41% natural gas.

Production decline
Of the oil majors that have reported financial results so far, Total SA (ADR) (NYSE:TOT) saw a similar decline in second-quarter profits due to lower realized oil and gas prices, which resulted in the French oil giant posting a 3% decline in quarterly profits.

But unlike Total SA (ADR) (NYSE:TOT), which reported its first production gain in three years, Statoil ASA(ADR) (NYSE:STO) reported a 1% decrease in total oil and gas production due mainly to natural production declines at some of its mature fields in the North Sea. Were it not for the impact of these maturing fields, the company would likely have registered a solid production increase, given that it reported record output from its fields outside Norway.

The outlook for Statoil
Despite the earnings miss, Statoil ASA(ADR) (NYSE:STO)’s outlook remains quite favorable. The company maintains strong positions in various frontier ventures around the globe including the U.S. Gulf of Mexico and offshore Africa. It is also expanding its presence in onshore U.S. oil plays, having recently assumed operational control over a portion of acreage in the prolific Eagle Ford shale of Texas that it operated jointly with Talisman Energy Inc. (USA) (NYSE:TLM).

Statoil currently holds about 73,000 net acres in the Eagle Ford and plans to add more if the price is right. It also maintains positions in other major U.S. oil and gas plays, including the Bakken shale in North Dakota and the Marcellus Shale in Pennsylvania, where it initially purchased a stake in acreage operated by Chesapeake Energy Corporation (NYSE:CHK) back in 2008 and has since acquired acreage that it operates independently.