Net profit of NOK 3.4 billion for 1999
A net profit of NOK 3.4 billion was achieved by the Statoil group for 1999. Although this represents an improvement of NOK 3.3 billion from the year before, it still remains unsatisfactory. Profit before financial items came to NOK 12.2 billion, an increase of almost 85 per cent from 1998, while profit before tax rose from NOK 4.3 billion to NOK 13.2 billion. The return on capital employed improved from 1.4 per cent in 1998 to 4.7 per cent, which corresponds to a return on equity of 7.5 per cent.
Higher oil prices and cost reductions were the most important reasons for the improvement in Statoil’s 1999 results, while sales gains also made a positive contribution. But profits were adversely affected by weaker prices and margins in refining, retailing and petrochemicals, as well as by write-downs and provisions. Operating and administration expenses were reduced by NOK 600 million, while exploration expenses were cut by NOK 1.1 billion.
Statoil’s net investment totalled NOK 19.1 billion, compared with NOK 20.7 billion in 1998. This spending was financed by cash flow from operations, which rose from NOK 10 billion to NOK 20.1 billion.
NOK 4 billion in net restructuring expenses has been charged against Statoil’s results. The group made gains of NOK 1.2 billion from divesting 50 per cent of its Scandinavian service station network, and NOK 1.5 billion from realising its shares in Saga Petroleum.
A provision of NOK 1.4 billion has been made in connection with the divestment of Statoil Energy in the USA and the planned divestment of the group’s upstream operations in the same country. Various write-downs have been made following a review by the board of future market prospects and an overall assessment of the group’s future strategy and priority areas. These cover NOK 1.8 billion on the Kalundborg refinery in Denmark, NOK 500 million on Statoil’s interest in Malaysia’s Melaka refinery, NOK 500 million on the group’s holding in the Tjeldbergodden methanol complex in mid-Norway and NOK 1.2 billion on the West Navion drill ship. A provision of NOK 800 million has also been made to cover estimated losses on rig contracts.
“Our improvement efforts have already yielded substantial results,” comments chief executive Olav Fjell. “This progress makes us optimistic that we will reach our objective of NOK 4 billion in annual cost reductions by the end of 2001.”
The 1999 results show that Statoil is moving in the right direction, he notes, but emphasises that earnings are unsatisfactory.
“A return of 4.7 per cent on capital employed is not good enough. Our goal is 10 per cent in 2001. This year’s results were weakened by expenses associated with our restructuring process, which aims to provide capital for profitable growth in priority areas.
“With the actions taken and improvements now made, we’re positioned to meet a demanding market. We are now becoming a more cost-effective and competitive group.”
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Reserves and production
The principles applied by Statoil for calculating proven reserves were changed in 1999 to accord with the requirements of the US Securities and Exchange Commission (SEC). This change means that the group uses the same standard as its international competitors.
Following the change, Statoil recorded proven reserves totalling 1 563 million barrels of oil and natural gas liquids at 31 December 1999, as against 1 512 million a year earlier. Recorded gas reserves totalled 284 billion standard cubic metres compared with 259 billion at 31 December 1998. International reserves now account for 15 per cent of Statoil’s overall proven reserves.
Daily oil and gas production by the group averaged 624 000 barrels of oil equivalent in 1999, as against 604 000 barrels the year before. Production increases through the acquisition of Saga assets, new fields on stream off Norway, higher gas sales and more international output compensated for declining flow from mature fields off Norway. Statoil received a daily average of 406 800 barrels of entitlement oil from Norwegian fields in 1999, which was on a par with the year before. Statoil's oil production outside Norway, totalled 58 000 barrels per day, an increase from 52 000 barrels per day the year before. Gas production for the group off Norway averaged 20.4 million cubic metres per day compared with 17.6 million in 1998. Internationally, the figures were 4.5 million as against 5.9 million.
Exploration and production showed a profit before financial items of NOK 12.8 billion, compared with NOK 6.2 billion in 1998. This figure includes a profit of NOK 14.9 billion from Norwegian operations and a loss of NOK 2.1 billion outside Norway.
Estimated losses on rig contracts and expenses associated with the divestment of US operations have been charged against the results.
Refining and marketing recorded a loss of NOK 273 million before financial items, compared with a profit of NOK 234 million the year before. Results were weak for both retailing and refining, primarily because of low margins and write-downs on the Kalundborg and Melaka refineries. Statoil traded an average of 1.9 million barrels of oil last year, based on its entitlement crude and volumes purchased from the state’s direct financial interest (SDFI).
Trading with crude oil and products yielded significantly better results than in 1998. The average price of Brent Blend, the North Sea reference crude, increased by 46 per cent — from NOK 96 to NOK 140. Operating results at the Navion shipping and offshore company strengthened by comparison with 1998, but the net outcome was weakened by writing down the West Navion drill ship.
Petrochemicals showed a loss of NOK 7 million before financial items, reflecting the write-down of the Tjeldbergodden methanol plant. Profit for this segment in 1998 came to NOK 371 million. Despite narrower margins, however, the Borealis petrochemicals group achieved a better result than the year before as a result of cost cuts, restructuring and high production.
It is the board's opinion that the group’s present and planned improvement measures will strengthen Statoil as a robust and profitable enterprise.
Further development of Statoil and SDFI as recommended in the board’s report of 13 August 1999 will reinforce the group’s opportunities for long-term balanced growth. It will also contribute to industrial development and substantial value creation for the owner.
Assuming that oil prices remain high, the board expects a better result for the present year than in 1999.
John Ove Lindøe, tel: +47 51 99 68 81
Wenche Skorge, tel: +47 51 99 79 71
Annual report and accounts