Statoil ASA (ADR) (NYSE:STO) operating income dropped 4% in 4Q2013, to NOK 43.9 billion while adjusted earnings dropped 12% YoY to NOK 42.3 billion during the same period. Company annual net operating income dropped 25% to NOK 155.5 billion in 2013 versus NOK 206.6 billion in the previous year.

Table 1: Financial highlights of 2013

Source: Statoil

Production shortages in 2013 drag down revenues

Earnings were driven down primarily by a decline in the top line accompanied by a massive increase in expenses. Sales were driven down by a drop in production in both Statoil-operated fields and partner-operated fields. Production was down across the board in both Norwegian and International fields; however, the only improvement was encountered in North America where the shale boom helped support the volumes of Statoil ASA (ADR) (NYSE:STO) during 2013.

“Statoil ASA (ADR) (NYSE:STO) delivered equity production of 1,940 mboe per day in 2013, compared to 2,004 mboe per day in 2012. The decrease is mainly a result of divestments and redetermination. Statoil increased its annual equity production outside Norway to a record high 723 mboe in 2013, driven by start-up and ramp-up of new fields,” states the company.

Figure 1: Production in Norway, International and North America

Statoil Production in Norway
Source: Statoil

Furthermore, the average price earned by Statoil ASA (ADR) (NYSE:STO) also dropped in 2013, following a global decline in oil prices. The average liquids price earned in 2013 equaled NOK 588 per barrel versus NOK 602 per barrel earned in 2012. Similarly, gas prices averages NOK 2.01 per square cubic meters (scm) in 2013 versus NOK 2.19 in 2012. Liquids prices improved during the last quarter but were not adequate to pull up the revenues total.

Figure 2: Average realized prices on liquids and gas

Statoil Average realized prices
Source: Statoil

As a result, the revenues of Statoil ASA (ADR) (NYSE:STO) dropped 12% in 2013 while just 1% in the forth quarter given the improved output from North American shale plays and the realization of 4% higher average liquids price.

Operational efficiencies absent

The company saw poor operational efficiency as the operating, selling and G&A expenses, depreciation charges and exploration expense hiked 24%, 18% and 5% respectively in 4Q2013. A similar trend was observed on an annual basis where the operating expenses and depreciation charges increased 16% and 20%, surpassing the 12% increase in revenues.

However, Statoil ASA (ADR) (NYSE:STO) believes the results were in line with expectation. “Our operational performance was good, with safety improvements, production as expected and strong project execution. We delivered leading exploration results and strengthened our resource base,” said the CEO, Helge Lund.

Figure 3: Statoil stock performance over the past year

Statoil stock performance
Source: Statoil

The future of Statoil

The company earned an EPS of NOK 12.53 in 2013 compared to NOK 21.66 during the previous year. The company has informed of its plans to reduce its capital expenditure for the next 3 years by more than USD 5 billion to free up cash flows. Furthermore, “Statoil expects to deliver around 3% average rebased organic production growth from 2013-16” says the company. Through its cost reduction program, Statoil ASA (ADR) (NYSE:STO) expects to realize net annual savings of USD 1.3 billion after 2016.