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* Capex to average $21 billion between 2013-2016
* Raises dividend to NOK 6.75 from NOK 6.50
* Reserve replacement ratio 100 pct in 2012
* Share price rises 2 percent
By Balazs Koranyi
LONDON, Feb 7 Norway's Statoil plans to
ramp up its capital spending to over $20 billion a year, it said
on Thursday, risking a cash crunch even if oil and gas prices
remain high enough to sustain its plans to lift production by a
quarter by 2020.
The investment plan will need oil prices to remain at over
$100 per barrel for the state-controlled company to achieve a
cash break-even, one of the highest levels required by a major
oil company, analysts said.
"Given its capex guidance, this suggests estimated free cash
flow generation of $1 billion, materially lower than the
estimated dividend payment of $3.8 billion," Barclays said in a
Having already undertaken an aggressive expansion of its
exploration interests abroad, Statoil aims to boost investments
to record highs through 2016, bringing new fields into
production from Brazil and East Africa to the North Sea, and
drilling more wells than ever before as oil prices sit
comfortably over $115 per barrel.
The annual capital spend is set to go on rising from $13.7
billion three years ago to $19 billion this year and an average
of $21 billion over the next four years, it said.
Even beyond 2013, the free cash flow would be below the
dividend payment, requiring the firm either to raise debt or to
sell assets to fund at least part of its returns to
shareholders, analysts said.
"There will be changes in the portfolio going forward ...
there will be assets sold, there will be assets acquired," Chief
Financial Officer Torgrim Reitan said at a results news
conference in London.
"In terms of debt, we are on the low side and debt is very
low priced currently so there are good arguments for increasing
gearing. Having said that, it is strategically important to run
with a solid balance sheet."
However, exploration efforts have paid off so far.
Statoil's reserve replacement ratio was 100 percent last
year after 117 percent the year before, after years of being
unable to replace the amount of oil and gas it produces with new
And the firm plans to drill 50 wells in 2013 with big hopes
on what it calls "high-impact" prospects off Canada, the Gulf of
Mexico, the Arctic Barents Sea and Tanzania, Reitan said.
Statoil defines a "high-impact" prospect as one that can
hold a total of more than 250 million barrels of oil equivalent
reserves in place or 100 million boe net to Statoil.
Production, which jumped 8 percent to 2 million barrels of
oil equivalent a day in 2012, will dip this year because of
asset sales, lower U.S. shale production and the attack on its
gas facility at In Amenas in Algeria.
But output should increase beyond that and exceed 2.5
million barrels per day by 2020 with nearly all of the increase
coming from international operations.
Statoil posted a fourth-quarter adjusted operating profit of
48.3 billion crowns ($8.8 billion), ahead of expectations and
allowing the firm to lift its dividend payment to 6.75 crowns
per share from 6.50 crowns a year earlier.
Investors liked the numbers, pushing Statoil shares up 2
percent to 147.2 crowns, even though the stock trades at 9 times
earnings forecasts for 2013, just ahead of the sector average of
8-8.5 times, according to Thomson Reuters data.
Its gas business, a cause for uncertainty last year because
it had to renegotiate long-term sales contracts, also performed
ahead of expectations, taking market share from rivals like
"The (gas) market is extremely tight, there is no new LNG
(liquefied natural gas) coming from the Middle East, and the
Asian LNG prices are at oil parity," Arctic Securities analyst
Trond Omdal said.
"We expect gas prices in Europe and Asia to remain strong;
the deterrent is, of course, that they are capped by coal
imports from the U.S.," Omdal said, indicating gas prices are
sensitive to alternative fuels, like coal.
Statoil now prices around half of its term gas contracts on
the basis of spot market prices, giving up a traditional
oil-linked pricing, and sees a further move to spot pricing,
even though Gazprom, its biggest rival, rejected such a move.
The new pricing pushed gas production up 18 percent last
year while its realised gas prices were up 5 percent.
"Demand in Europe actually declined a bit due to the state
of Europe but on back of that we increased our sales," Reitan
"What we would really like to see is a more clear statement
from Europe that gas is the future ... There is a lot of it
(and) it is cheap."
Although the company hopes to raise the proportion of oil in
its output to 60 percent by 2020, from around 55 percent
currently, it said it will also venture further into liquefied
natural gas, particularly in Tanzania, where it confirmed
another major gas discovery on Thursday.
The find in the Lavani prospect adds up to 9 trillion cubic
feet to the resource, making it "very likely" the company would
develop it and opt for an LNG facility to take advantage of
Asia's hunger for energy.
It will also spend heavily at home, not least on the giant
new Johan Sverdrup field which is estimated to hold up to 3.3
billion barrels of recoverable oil, as it seeks to replace
maturing North Sea fields.
($1=5.4892 Norwegian kroner)
(Additional reporting by Nerijus Adomaitis in Oslo; Editing by
Mark Potter and Greg Mahlich)