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Statoil Looks to Debt Sales to Meet Dividend Goal: Nordic Credit

Statoil ASA Chief Financial Officer Torgrim Reitan
Statoil ASA Chief Financial Officer Torgrim Reitan. Photographer: Chris Ratcliffe/Bloomberg

Statoil ASA signaled it’s ready to sell debt to make up for declining oil prices as Norway’s biggest oil and natural gas producer looks for ways to pay for a planned increase in dividends.

“Borrowing money is absolutely fine,” Statoil Chief Financial Officer Torgrim Reitan said in a Nov. 7 interview with Bloomberg Television. “It’s sort of a tool that’s there and we do that from time to time. We have a great set of opportunities for the future that we really would like to realize, and borrowing money is a natural thing to do.”

Nordic companies have been issuing debt at a record pace this year to tap demand after the region emerged as a haven from Europe’s debt crisis. Yields on bonds sold by Scandinavia’s AAA rated governments have eased to record lows, even slipping below zero in Denmark and Finland. That’s pushed investors in search of higher yields in the region into corporate debt markets.

Statoil wants to give shareholders a “predictable, growing dividend,” Reitan said in connection with the company’s third-quarter report, and expects capital spending next year to rise from an estimated $18 billion in 2012. At the same time, the company’s total output will fall next year because of a sale of Norwegian offshore assets to Wintershall AG and due to lower-than-planned shale gas production in the U.S.

A total of $185 billion in corporate bonds have been sold this year in the region, up from $174 billion last year, according to data compiled by Bloomberg.

Spread Narrows

The spread on Statoil’s benchmark 4.375 percent euro note maturing in 2015 relative to similar-maturity German bunds has narrowed to about 57 basis points as of today, according to bid prices, from as wide as 170 basis points in October last year.

Statoil’s shares rose 0.2 percent to 137.7 kroner as of 9:04 a.m. in Oslo.

Analysts including Nordea Bank AB’s Helge Andre Martinsen argue that the Stavanger, Norway-based company is relying on unrealistically high oil prices to fund investments and dividends from its cash flow next year.

Delays in developing fields in Norway’s booming oil industry will also make Statoil’s production targets harder to reach, Martinsen said in September. He argues Statoil would need Brent crude to average a “whopping” $127 a barrel next year to cover investments and dividends from its cash flow.

That compares with about $107 today and an average of $112 this year. Benchmark U.S. oil slid to a four-month low of $84.44 a barrel on Nov. 7.

“The fields have gotten smaller or much more expensive” to develop over the past decade, said Arctic Securities analyst Trond Omdal. “A lot of the profits have disappeared into oil services.”

Raising Cash

Statoil would need a Brent price of more than $125 a barrel next year to fund dividends and capital expenditure with free cash flow, Omdal estimates. The asset sale to Wintershall, which will bring in $1.35 billion, “almost covers the gap,” he said.

The company is estimated to pay a 6.71 kroner dividend a share for 2012, according to a Bloomberg survey of 32 analysts. It paid shareholders 6.5 kroner for 2011.

Statoil will probably sell bonds to raise the cash, said Teodor Sveen Nilsen, an analyst at Swedbank First Securities. To avoid selling debt, Statoil would need an average Brent price of around $120, according to Sveen Nilsen’s calculations. “It’s a little alarming, but this applies to many oil companies.”

The 67 percent state-owned company, which is rated AA- at Standard & Poor’s, last year sold three dollar-denominated bonds, raising a total of $1.75 billion. Its $650 million, five-year bonds were sold at a coupon of 1.8 percent.

The company, which hasn’t sold debt since last year, is very “financially solid” and expects it would meet ample demand should it decide to issue bonds again, said Reitan.

Statoil bonds “are a popular paper in the markets, strong credit rating, Scandinavian paper and all of that,” he said.

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