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Weak result in difficult market

October 30, 1998, 00:00 CET

Net profit for the Statoil group came to NOK 1.3 billion for the first nine months of 1998, as against NOK 3.1 billion in the same period of last year.

Operating profit totalled NOK 7.2 billion compared with NOK 13.2 billion in the first nine months of 1997. Lower oil prices accounted for NOK 4.2 billion of this NOK 6 billion decline.

"Results after the third quarter are poor, and will be greatly weakened for the year as a whole," says chief executive Harald Norvik.

"Low oil prices are the single most important reason, and we can't reckon with significant increases in future. So our most important task will be to continue working on factors we can influence ourselves.

"We've adopted extensive measures to respond to a development characterised by lower prices and profit margins for our products. Investment will be cut and new projects must be profitable at a lower oil price.

"At the same time, we're continuing and strengthening a number of measures to reduce operating costs, and reorganising our administrative work processes to make more effective use of personnel. These efforts will help to make us more robust."

Oil production by Statoil declined slightly in the first nine months compared with the same period of 1997. Results were also affected by high exploration costs, writing down the Lufeng and Varg fields and the cost of cancelling the West Navion II drill ship.

The tax burden is higher than 1997 because of depreciation and high exploration costs in countries where the group has yet to begin earning taxable revenues.

Retailing operations in Statoil significantly improved their results from last year in a competitive market.

Cash flow from operations came to NOK 10.8 billion for the nine months to 30 September, compared with NOK 14.4 billion in the same period of 1997. Net investment came to NOK 15.1 billion as against NOK 15.4 billion.

Net financial expenses totalled NOK 1.3 billion, down from NOK 2.1 billion the year before. Group revenue for the first nine months came to NOK 93.1 billion, compared with NOK 89.2 billion in 1997.

Exploration and production
Operating profit for the exploration and production business came to NOK 6 554 million as against NOK 11 968 million for the first nine months of 1997.

NOK 1 954 million in exploration costs were charged against income, compared with NOK 1 366 million in the same period of last year. This increase relates primarily to operations in the Gulf of Mexico and on the UK continental shelf.

Lufeng has been written down by NOK 300 million, while the write-down on Varg is NOK 500 million in accordance with the operator's valuation.

Daily supplies of entitlement oil for the group during the first nine months averaged 429 000 barrels, as against 437 000 barrels for the same period of last year.

The average posted price of Brent Blend reference crude fell over the period from USD 19.20 (NOK 136) per barrel to USD 13.30 (NOK 100).

Daily sales of entitlement gas over the first nine month totalled 23.5 million cubic metres, as against 20.5 million in the same period of 1997.

Refining and marketing
Operating profit for the refining and marketing business during the first nine months came to NOK 400 million, as against NOK 1 194 million in the same period of 1997.

Cancellation costs associated with the West Navion II drill ship project at the Navion shipping and offshore company - owned 80 per cent by Statoil - are one reason for the weak result.

After the construction contract held jointly with Smedvig of Stavanger was cancelled, Navion reached agreement with the yard to complete the newbuilding as a multipurpose vessel.

Declining prices have reduced trading results for crude oil and products. The refining sector showed rather lower profits for the first nine months compared with last year, mainly because of a planned turnaround at the Mongstad facility in western Norway.

Retailing operations, which embrace Statoil's service stations, strengthened their results compared with the same period of 1997.

Crude oil sales totalled two million barrels per day, as against 2.1 million in the first nine months of last year.

Petrochemicals
Operating profit improved substantially for petrochemicals compared with the same period of 1997, rising from NOK 269 million to NOK 435 million.

Results for the Borealis petrochemicals group, owned 50 per cent by Statoil, were on a par with the year before.

The methanol business did better than in 1997, when it was affected by start-up costs for the Tjeldbergodden plant in mid-Norway. However, very low methanol prices mean operating profit so far this year is unsatisfactory.

Prospects
Financial results for the third quarter were weak. No speedy improvement is likely in prices and margins for the group's principal products.

Results for the year as a whole will be significantly lower than in 1997.

Further information from: John Ove Lindøe, tel: +47 51 99 68 81