Statoil Cost-Cutting Limits Losses

Norwegian major Statoil lost $2.785bn in 4Q 2016, despite a 2% increase in production (2.096mn barrels of oil equivalent/d) and a 14% increase in the liquids price compared with the same period of 2015, it said February 7.

For 2017 Statoil hopes to cut another $1bn from its costs, on top of the already achieved $3.2bn, $700mn more than projected. 

Half its total 4Q revenue, $12.756bn, went on purchases, but it wrote down $2.298bn, mainly owing to lower long-term price assumptions, the largest effect of which being on onshore assets in North America, including shale and tar sands. It also recorded an unrealised loss of $765mn on derivatives and inventory hedge contracts. It also had to pay Brazil's Petrobras half the maximum $2.5bn total for a 66% operating interest in the Santos Basin.

In the same period of 2015, it made net impairment charges related to various assets of $1.185bn and provisions for disputes of $559mn. And in that quarter it made a net loss of $1.122bn – less than half as much as it lost in 4Q 2016.

In its statement, it said: "The results were impacted positively by the development in oil price and marketing and trading results, while the reduced European gas prices and significant impairments due to revision of long-term price assumptions, impacted the results negatively."

On the positive side, Statoil has cut the required average break even for projects starting before 2022 to $27/boe with an average internal rate of return (IRR) of 25%, assuming $70/boe. Recoverable resources from this portfolio are 3.2bn boe, it said, and "they will deliver high value barrels and cash flow growth."

Eldar Saetre

(Credit: Statoil)

“We have reset our cost base, transformed our opportunity set, and we continue to chase improvements. We have the financial capacity and are ready to invest in our next generation portfolio with radically improved break evens. With a sharpened high value, low carbon strategy, Statoil is well positioned for the long term and even more value driven in everything we do,” said CEO Eldar Saetre.

Statoil will invest around $11bn this year to help a 4-5% production growth and organic annual production growth of around 3% from 2016 to 2020. It is planning to spend just $1.5bn on exploration activity in 2017. 

William Powell