Statoil ASA (NYSE:STO)’s operating earnings dropped 4% YoY on account of excessive depreciation and exploration expenses. Statoil recently released its accounts for 3Q2013 and revealed that its net income has dropped 6% to NOK 13.7 billion in 3Q2013 against NOK 14.5 billion in the same period last year. Adjusted income was up 1% to NOK 40.4 billion.

Table 1: Statoil Income Statement 3Q2013

Statoil
Source: Statoil

The revenues of the company increased 2% YoY, primarily due to an increase in revenues from development and production activities in Norway. The total oil and gas production of the company has increased 2% YoY, which indicates that the entire top line impact has come from production increases.The revenues from Norway, however, had a multifold increase from just NOK 0.4 billion to NOK 7.7 billion in 3Q2013.

However, gas production from Norway has declined significantly (11% YoY). This means that the total production of Norway has dropped 4% in 3Q2013. On the other hand, production from international fields has risen significantly with the largest impact coming from North America.

Table 2: Oil and gas production of Statoil in 3Q2013 versus 3Q2012

Source: Statoil
Source: Statoil

Despite the increase in production and the consequent increase in revenues, operating income has declined significantly, primarily led by a spike in exploration expense and an increase in depreciation, amortization and impairment losses. Exploration expense increased 14% YoY. However, this expense has been fruitful as Statoil ASA (NYSE:STO) claims to have made more oil and gas discoveries in the year 2013 than any other company. Furthermore, a jump of 54% in depreciation, amortization and impairment expense has pulled the operating income down 4% YoY.

The major decline in earnings came from the international development and production segment (down 91% YoY) and from the marketing, processing and renewable energy segment (decline of 80% YoY). While the marketing segment contributed the most to the revenues, it was the Norway production segment that pulled up the earnings.

Figure 1: Segmental contribution to revenues and operating income in 3Q2013

Source: Statoil
Source: Statoil

As a result, Statoil ASA (NYSE:STO)’s EPS dropped to NOK 4.48 per share in 3Q2013 against an EPS of NOK 4.51 in the same period previous year. However, the previous quarter EPS stood at NOK 1.38 so this indicates some upward movement for the company. What is important to note is that the earnings dropped as a consequence of exploration activity which is likely to increase company earnings in the future.

Figure 2: Statoil quarterly EPS and share price in NOK and USD per share

Source: Statoil
Source: Statoil

Statoil delivered strong strategic progress

“Statoil ASA (NYSE:STO) delivered strong strategic progress in the third quarter. We added high value barrels through the Bay du Nord discovery offshore Canada, the world’s largest oil discovery this year. We also announced a major divestment to capture value created through asset development and unlock capital for investment in high return projects. Our operational performance is good and we delivered solid earnings in the period,” concluded Helge Lund, Statoil’s president and CEO.