Statoil ASA (STL) scaled back spending plans and cut production targets as Norway’s largest oil and gas producer seeks to boost free cash flow and shareholder returns amid rising costs and stagnating energy prices.
The company cut its investment goal for the three years through 2016 by 8 percent to about $20 billion a year, it said in a statement today. Statoil, which reported a 27 percent drop in quarterly profit, will now also increase output by a quarter to 2.5 million barrels of oil equivalent a day three to four years later than its original target in 2020, it said.
“We are making some important changes,” Chief Executive Officer Helge Lund said. “Stricter project prioritization and a comprehensive efficiency program will improve cash flow and profitability. Our strong balance sheet enables prioritization of capital distribution to shareholders.”
Statoil, which is expanding abroad and into the Norwegian Arctic to compensate for falling output from aging North Sea fields, has increased spending by almost 70 percent since 2009 to a record $18.3 billion last year. At the same time, the company has sold pipelines, its retail business and oil and gas fields from the North Sea to Azerbaijan for about $18 billion to help pay dividends.
Statoil, in which the government owns a 67 percent stake, proposed a dividend of 7 kroner ($1.13) a share, up from 6.75 kroner a year earlier, and said it will introduce quarterly payments as well as increasing the use of share buybacks.
The reduction in spending growth will result in positive organic free cash flow after dividends from 2016, Statoil said. The company also plans to save 1.3 billion kroner a year in costs from 2016 through improved efficiency, it said.
“We see the results as broadly neutral, with a miss to net earnings in the fourth quarter offset by positive strategic guidance,” RBC Capital Markets analyst Peter Hutton said in an e-mailed note.
Statoil gained as much as 3.2 percent, the most in almost a month, having earlier declined as much as 2.7 percent. The stock traded 2.8 percent higher at 153.1 kroner as of 12:20 p.m. in the Norwegian capital.
Rising costs have curbed profitability across the industry, with companies from Royal Dutch Shell Plc to Exxon Mobil Corp. and BP Plc (BP/) reporting lower income for the fourth quarter and promising capital discipline and divestments.
Statoil’s adjusted net income, which excludes items not directly related to operations, fell to 11 billion kroner in the fourth quarter from 15.1 billion kroner as production dropped 4 percent to 1.945 million barrels of oil equivalent a day.
Statoil expects production to decline to 1.887 million barrels of oil equivalent a day in 2014 because of asset sales, before rising again at a rate of 3 percent a year on average from 2013 through 2016. Production already fell 3 percent in 2013 to 1.94 million barrels a day.
The company expects to drill about 50 wells this year and will spend about $3.5 billion on exploration, 7 percent lower than in 2013, it said.
Statoil has already signaled it will continue to sell assets and has said it will choose new investment projects more carefully, prioritizing value creation over production.
The company last year delayed investment decisions on its Johan Castberg oil development in the Arctic Barents Sea, shelving $15 billion of plans which included an oil hub at North Cape, as well as the Bressay heavy-oil field in the U.K, citing higher costs among other factors.
The company earned an average of $100.4 a barrel for oil in the fourth quarter, down from $102.7 a year earlier, and 2.09 kroner a cubic meter for gas, down from 2.12 kroner, it said. Brent crude averaged $109.3 a barrel in the fourth quarter, down from $110.2 a year earlier.
Statoil’s reserve replacement ratio was 128 percent in 2013, meaning the company booked more reserves than it produced.
To contact the reporter on this story: Mikael Holter in Oslo at firstname.lastname@example.org