NOK 7 billion in operating profit for 1998
The Statoil group achieved an operating profit of NOK 7 billion in 1998, which represents a decline of NOK 10 billion from the year before. Profit before tax fell from NOK 14 billion in 1997 to NOK 4.7 billion. Net profit for the year came to NOK 271 million as against NOK 4.3 billion in 1997. The group's revenues totalled NOK 106.7 billion, compared with NOK 124.7 billion the year before.
"This result is very weak," says chief executive Harald Norvik. "We are now pursuing far-reaching measures to improve earnings within the group. "We will be lowering our level of costs. We are trimming investment, both in Norway and internationally. We will be cutting exploration operations. A reduced level of activity combined with the need to cut costs means that we must shed in the order of 1 500 full-time jobs by the end of 2000."
Statoil's results have been particularly influenced by low oil prices, high exploration costs, and write-downs and provisions. Write-downs and provisions amount to NOK 4 billion.
Net investment by the group came to NOK 20.7 billion as against NOK 19.7 billion in 1997. Cash flow from operations was stable at NOK 10.1 billion compared with NOK 10.7 billion the year before. Interest-bearing debt rose by NOK 15.7 billion to NOK 45.2 billion. The group's goal is to balance the relationship between cash flow from operations and cash flow to investment. Return on capital employed came to 1.8 per cent, compared with 8.6 per cent in 1997. The group's equity ratio at 31 December was 30.3 per cent as against 32.4 per cent a year earlier.
"Securing financial freedom of action is important for Statoil," says Mr Norvik. "Our financial position is strong, but we are initiating wide-ranging measures to strengthen our results in the short term."
Reserves and production
Statoil's overall oil reserves rose by 18 per cent in 1998, from 2 051 million barrels of oil equivalent the year before to 2 418 million. Gas reserves declined from 366 billion cubic metres to 340 billion. The entire increase in oil reserves has been achieved outside Norway, with international holdings rising by 90 per cent in 1998. These now account for 30 per cent of Statoil's overall oil reserves. Discoveries have also been made which are not sufficiently matured to be included in the reserve base. New reserves added off Norway were smaller than the volume produced there during the year. Statoil's overall production of oil and gas rose from 588 000 barrels of oil equivalent per day in 1997 to 608 000 barrels per day. Daily supplies of entitlement oil from Norwegian fields came to 408 000 barrels, a decline of 13 000 barrels from 1997.
Gas production averaged 17.6 million cubic metres per day. The group still has large ambitions on the Norwegian continental shelf, but future discoveries there are expected to be smaller and more complex than the big fields now in production. As a result, finding and developing a sufficient number of new fields will be a major challenge in coming years. This increases the need for structural change and for modifications to government policies. Statoil's daily international oil production averaged 52 000 barrels in 1998, with gas production averaging 5.9 million cubic metres.
Operating profit for exploration and production came to NOK 6.7 billion, compared with NOK 15.4 billion in 1997. This result breaks down into a profit of NOK 9.2 billion from Norwegian operations and a loss of NOK 2.5 billion on international exploration and production. The operating result for Norwegian operations includes a provision of NOK 1.5 billion for calculated losses on rig contracts and for writing down the value of the Varg and Yme oil fields. Write-downs on international operations totalled NOK 1.2 billion for the Lufeng field off China and fields on the UK continental shelf. Refining and marketing achieved an operating profit of NOK 240 million as against NOK 1 301 million in 1997. The market for crude oil has been difficult, with fairly substantial pressure on prices. During 1998, Statoil placed great emphasis on finding new markets. Sales to Asia expanded substantially. The average price of Brent Blend, the North Sea reference crude, fell by 30 per cent from the year before - from NOK 135 (USD 19.1) per barrel to NOK 96 (USD 12.7). In the retailing sector, Statoil has concluded a frame agreement with the ICA/Hakon group on joint ownership and operation of 1 500 service stations in Scandinavia. Operating profit for the petrochemicals business sector came to NOK 371 million as against NOK 396 million in 1997.
The setbacks for the world economy in 1998 demonstrate the vulnerability of the energy industry to fluctuations in global demand. Asia's economic crisis meant substantially weaker growth in oil consumption by the part of the world where demand had expanded most strongly in recent years. At the same time, global production capacity has increased because a growing number of areas are being opened for exploration and because of rapid technological progress. There are no signs that resources will move into short supply in the immediate future. Statoil's results over the next few years will continue to depend to a great extent on developments in the oil market and in production from the Norwegian continental shelf. The overall picture is coloured by increased production capacity and weak demand. Cost-effective development and operation are important for Statoil in order to safeguard its competitiveness and earnings. Short-term earnings will be given priority. The group's long-term ambitions are dependent on its ability to deliver results in the short term. A major improvement is required in operating profit and return on capital employed, and greater emphasis than before will be given to restructuring as an instrument.
New organisation and management changes