The FINANCIAL — StatoilHydro ASA (OSE: STL, NYSE:STO) StatoilHydro's net income in the third quarter in 2008 amounted to NOK 6.3 billion compared to NOK 14.6 billion in the third quarter of 2007 and was negatively affected by the significant strengthening of the US dollar compared to NOK on net financial items and consequently an unusually high tax rate.
Net income in the first nine months of 2008 amounted to NOK 41.2 billion, compared to NOK 38.4 billion in the first nine months of 2007.
In the third quarter of 2008 the net operating income was NOK 47.0 billion, compared to NOK 35.8 billion in the third quarter of 2007. For the first nine months of 2008, net operating income amounted to NOK 161.1 billion, compared to NOK 106.4 billion in the first nine months of 2007.
Adjusted for certain items that are considered to be not reflective of StatoilHydro's underlying operational performance, the adjusted (underlying) net operating income in the third quarter of 2008 was NOK 52.1 billion, compared to NOK 32.8 billion in the third quarter of 2007. For the first nine months of the year, adjusted net operating income increased by NOK 53.8 billion to NOK 158.9 billion.
The increase in adjusted (underlying) net operating income from the third quarter of 2007 to the third quarter of 2008 was mainly due to a 36% increase in the realised prices of liquids (crude oil, condensate and NGL), measured in NOK and a 55% increase in natural gas prices, partly offset by a 3% decrease in entitlement volumes.
The NOK 53.8 billion increase in underlying net operating income from the first nine months of 2007 to the first nine months of 2008 was mainly due to a 41% increase in realised liquids prices measured in NOK and a 38% increase in natural gas prices. The increase was partly offset by increased operating expenses, mostly in the downstream business, and increased exploration expenses.
"Our operating performance and operating income are strong and we are well positioned industrially and financially in a time with great uncertainty in the financial markets", says Helge Lund, StatoilHydro's chief executive.
"We are capable of meeting our committed capital expenditures and a competitive dividend pay-out, even with lower oil prices", says Lund.
"Our equity production in the first nine months was 1.892 million barrels of oil equivalents per day (mmboepd), up 5% compared to the same period in 2007. In total we remain on track to deliver on our 2008 production guiding", Lund adds.
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In the third quarter of 2008, StatoilHydro delivered total liquids and gas entitlement production of 1,550 mboe per day. Lifted volumes decreased by 9% to 1,504 mboe per day. However, higher prices for liquids and natural gas more than offset the negative effects of decreased lifting, so that net operating income for the third quarter of 2008 increased to NOK 47.0 billion, up 31% from NOK 35.8 billion in the third quarter of 2007.
In the first nine months of 2008, StatoilHydro delivered total liquids and gas entitlement production of 1,716 mboe per day. Solid production and high prices yielded a net operating income for the first nine months of 2008 of NOK 161.1 billion, compared to NOK 106.4 billion in the first nine months of 2007.
During the first nine months of 2008, the group gained access to 15 new licenses in the Gulf of Mexico, Alaska and Brazil. This comes in addition to the acquisition of the remaining 50% of the Peregrino development offshore Brazil. The acquisition is pending governmental approval.
StatoilHydro delivered an extensive exploration programme in the first nine months of 2008. Of a total of 60 completed exploration wells by 30 September, 33 were drilled outside of the NCS. Twenty-six discoveries have been declared, of which eight were made outside of the NCS. An additional four wells have been completed since 30 September.
In the first nine months of 2008, StatoilHydro delivered three PDOs (Plan for Development and Operation) on the NCS; Yttergryta (18 January), Morvin (15 February) and Troll Field project (27 June). On the NCS StatoilHydro started up production on six fields; Gulltopp (7 April), Oseberg Gamma Main Statfjord (12 April), Vigdis East (15 April), Theta Cook (26 June), Oseberg Delta (27 June) and Vilje (1 August). Internationally, production commenced on Deep Water Gunashli in Azerbaijan (22 April), Saxi and Batuque offshore Angola (1 July) and the Nigerian field Agbami (29 July).
Return on average capital employed after tax (ROACE) [*] for the 12 months ended 30 September 2008 was 28.9%, compared to 22.0% for the 12 months ended 30 September 2007. The increase was due to higher net income, partly offset by higher average capital employed. ROACE is defined as a non-GAAP financial measure.
In the third quarter of 2008, earnings per share were NOK 2.04, compared to NOK 4.52 in the third quarter of 2007. In the first nine months of 2008, earnings per share were NOK 12.95, compared to NOK 11.86 in the first nine months of 2007.
Items impacting in the third quarter of 2008 the net operating income was NOK 47.0 billion, compared to NOK 35.8 billion in the third quarter of 2007.
Net operating income is adjusted for certain items that are considered to be incidental to the period or not reflective of StatoilHydro's underlying operational performance. Adjusted (underlying) net operating income is considered a supplemental measure to the StatoilHydro's IFRS measures that provides a better indication of StatoilHydro's underlying operational performance in the period.
The following items impacted the net operating income in the third quarter of 2008: derivatives had a posive impact of NOK 0.9 billion, while impairment charges (NOK 3.1 billion), underlift (NOK 1.3 billion), an accrual for expected losses on a tolling agreement (NOK 1.3 billion), inventory effects (NOK 0.9 billion) and other non operational accruals (NOK 0.4 billion) had a negative impact.
Adjusted for these items and effects of eliminations (NOK 1.0 billion), adjusted (underlying) net operating income was NOK 52.1 billion in the third quarter of 2008, compared to NOK 32.8 billion in the third quarter of 2007. The increase was mainly due to a 36% increase in realised prices of liquids measured in NOK, a 55 % increase in gas prices measured in NOK, partly offset by a 3% decrease in entitlement production, higher operating expenses in our downstream business and higher exploration expenses.
In the first nine months of 2008 the net operating income was NOK 161.1 billion, compared to NOK 106.4 billion in the first nine months of 2007. The following items had a positive impact on the net operating income in the first nine months of 2008: derivatives of NOK 5.7 billion, reversal of impairment of NOK 2.1 billion and gain on sale of assets of NOK 1.8 billion. These were partly offset by impairment charges of NOK 5.6 billion, an accrual for expected losses on a tolling agreement (NOK 1.3 billion), underlift of NOK 1.1 billion, accrual for claims (NOK 0.5 billion) and other non operational accruals NOK 0.4 billion.
Adjusted for these items, adjusted (underlying) net operating income was NOK 158.9 billion in the first nine months of 2008, compared to NOK 105.1 billion in the first nine months of 2007. The increase was mainly due to a 41% increase in prices of liquids measured in NOK, a 38 % increase in gas prices and a 1% increase in entitlement production, partly offset by higher operating expenses especially in the downstream business and higher exploration expenses.
Total liquids and gas liftings in the third quarter of 2008 were 1,504 mboe per day, compared to 1,660 mboe per day in the third quarter of 2007, a decrease of 9%. There was an underlift in the third quarter of 2008 of 29 mboe per day [*] compared to an underlift in the third quarter of 2007 of 36 mboe per day.
Total liquids and gas liftings in the first nine months of 2008 were 1,691 mboe per day, compared to 1,718 mboe per day in the first nine months of 2007, a 2% decrease. There was an underlift in the first nine months of 2008 of 10 mboe per day [*] compared to an overlift in the first nine months of 2007 of 26 mboe per day.
Total liquids and gas entitlement production in the third quarter of 2008 was 1,550 mboe per day, compared to 1,596 mboe per day in the third quarter of 2007. Average equity [*] production was 1,733 mboe per day in the third quarter of 2008 compared to 1,722 mboe per day in the third quarter of 2007. The decrease in entitlement production mainly stems from increased maintenance activity, shut downs and declining production from maturing fields, but was partly offset by ramp-up in production from new fields coming on stream.
Total liquids and gas entitlement production in the first nine months of 2008 was 1,716 mboe per day, compared to 1,692 mboe per day in the first nine months of 2007. Average equity [*] production was up 5% to 1,892 mboe per day in the first nine months of 2008 compared to 1,798 mboe per day in the first nine months of 2007. Increased production mainly stems from new fields coming on stream and a higher gas off-take, but was partly offset by declining production from maturing fields.
Exploration expenditure was NOK 4.3 billion in the third quarter of 2008, compared to NOK 3.4 billion in the third quarter of 2007. Exploration expenditure was NOK 11.9 billion in the first nine months of 2008, compared to NOK 9.1 billion in the first nine months of 2007. The increase in both periods was mainly due to higher exploration activity and increased drilling costs. Exploration expenditure reflects exploration activities in the period.
Adjusted exploration expenses for the period consist of exploration expenditure adjusted for the period's change in capitalised exploration expenditure and for certain items impacting the net operating income as described above. The adjusted (underlying) exploration expenses increased from NOK 3.0 billion in the third quarter of 2007 to NOK 3.3 billion in the third quarter of 2008, mainly due to higher exploration activity and increased drilling costs.
Adjusted exploration expenses increased from NOK 6.8 billion in the first nine months of 2007 to NOK 8.5 billion in the first nine months of 2008, mainly due to higher exploration activity and increased drilling costs.
In the third quarter of 2008, a total of 15 exploration and appraisal wells and two exploration extension wells were completed, nine on the NCS and six internationally. Ten exploration and appraisal wells and two exploration extension wells have been declared as discoveries. In the third quarter of 2007, a total of 15 exploration and appraisal wells were completed, seven on the NCS and eight internationally. Fourteen exploration and appraisal wells were declared as discoveries.
In the first nine months of 2008, a total of 60 exploration and appraisal wells and six exploration extension wells were completed, 27 on the NCS and 33 internationally. Twenty-six exploration and appraisal wells and four exploration extension wells have been declared as discoveries. In the first nine months of 2007, a total of 51 exploration and appraisal wells and two exploration extension wells were completed, 18 on the NCS and 33 internationally. Twenty-seven exploration and appraisal wells and two exploration extension wells were declared as discoveries.
A number of completed wells internationally have encountered hydrocarbons but need a more thorough evaluation before external announcement.
Drilling of 14 exploration and appraisal wells and two exploration extension well was ongoing at the end of third quarter 2008. Four wells have been completed after 30 September 2008, of which two wells have been declared as discoveries.
Production cost per boe was NOK 47.4 for the 12 months ended 30 September 2008, compared to NOK 33.3 for the 12 months ended 30 September 2007. Based on equity volumes, the production cost per boe for the two periods was was NOK 43.1 and NOK 31.5, respectively.
Normalised at a USDNOK exchange rate of 6.00, the production cost for the 12 months ended 30 September 2008 was NOK 48.2 per boe, compared to NOK 33.2 per boe for the 12 months ended 30 September 2007. Normalised production cost is defined as a non-GAAP financial measure.
The production cost per boe, both actual and normalised, has increased significantly, mainly due to non-recurring restructuring costs relating to the merger of Statoil ASA and Hydro Petroleum in 2007, start-up of new fields, increased maintenance cost and general industry cost pressure.
Adjusted for restructuring costs and other costs arising from the merger recorded in the fourth quarter of 2007 and gas injection costs, the production cost per boe of equity production for the 12 months ended 30 September 2008 was NOK 33.2. The comparable figure for the 12 months ended 30 September 2007 is NOK 29.0.
Net financial items amounted to a loss of NOK 9.7 billion in the third quarter of 2008, mainly caused by a NOK 0.75 (14.7%) weakening in relation to the US dollar, compared to an income of NOK 6.5 billion in the third quarter of 2007 mainly caused by a NOK 0.46 (7.8%) strengthening in relation to the US dollar.
The NOK 16.3 billion negative change was mostly attributable to currency effects. Specifically, in the third quarter of 2008, currency losses amounted to NOK 11.8 billion and NOK 5.1 billion related to financial risk management and non-current financial liabilities, respectively. By comparison, in the third quarter of 2007, currency gains amounted to NOK 4.7 billion and NOK 3.1 billion related to financial risk management and non-current financial items, respectively. The net currency losses were partly offset by net currency gains of NOK 8.2 billion related to receivables which were mostly internal US dollar loans provided by a Euro-functional currency subsidiary.
In the first nine months of 2008, net financial items amounted to a loss of NOK 6.3 billion, mainly caused by a NOK 0.42 weakening in relation to the US dollar, compared to an income of NOK 10.3 billion in the first nine months of 2007 mainly caused by a NOK 0.81 strengthening in relation to the US dollar.
As described above for the quartely effects, the NOK 16.6 billion decrease was mainly related to net currency losses of NOK 15.3 billion and NOK 8.1 billion related to financial risk management and non-current financial liabilities respectively. The net currency losses were partly offset by net currency gains of NOK 6.8 billionrelated to receivables which were mostly internal US dollar loans provided by a Euro-functional currency subsidiary.
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