* Pushes 2020 production target back by 3-4 years
* Slows Arctic oil exploration
* Plans quarterly dividends, more active share buy-backs
* Follows industry trend of cutting spending
* Shares jump 6 pct to highest in almost 2 years
By Gwladys Fouche and Balazs Koranyi
LONDON/OSLO, Feb 7 Norway's Statoil
abandoned its 2020 production target on Friday and slashed
spending plans so it could pay more to shareholders, becoming
the latest oil major to acknowledge the fading appeal of new
Rising investment costs and falling prices have cut the
potential returns on new oil and gas plays, especially more
ambitious ones that present greater risks, prompting some
companies to delay or curtail them.
Statoil has been one of the top spenders, ploughing much of
the $18 billion it earned since 2010 from selling producing
fields, pipelines and its retail chain to fund an aggressive
global expansion of exploration and production.
Its wild success in exploration - it found more reserves
than any other conventional energy firm last year - risks
becoming a burden as it now has a plethora of projects to
monetise across every continent.
Statoil is a pioneer in Arctic oil exploration. It has also
spent heavily on U.S. shale assets, leaving it exposed to
depressed U.S. gas prices, dragging down its profits last year.
"Given market circumstances we need to find a better balance
between growth and return that also gives us earlier free cash
flow so that we can also service the shareholders," Chief
Executive Helge Lund told Reuters. "This industry does not have
the best track record in terms of cost discipline."
Lund has made Statoil a global player with big finds in
places like Brazil, Canada and Tanzania. Now the company aims to
spend $5 billion less than planned in the next three years and
is pushing back a 2020 target to increase output by a quarter to
2023 or 2024 so it can raise dividends and buy back shares.
Statoil shares dropped 3 percent soon after Friday's
announcement. But, in a sign that investors welcomed Lund's
move, the stock changed course and was up 5.8 percent by 1500
GMT, its highest in almost two years. The sector index
was up 0.3 percent.
"Statoil becomes the latest European oil major to fall into
line with the market's demands for a better balance between
capex and production," brokerage Investec said in a note. "But
the aim to cover capex and dividends in 2016 at $100 per barrel
still looks a stretch on our forecasts."
Investec said its "sell" rating on Statoil shares was under
Other analysts said upside for the stock was limited as
Statoil was trading broadly in line with its peers after erasing
a sizable discount over the past several months.
"Given Statoil's very mixed history for its guidance, we
doubt the company will get very much bang for the bucks from
these statements, at least in the short term," Swedbank said.
After dividends, several energy majors risk bleeding cash
for years to come until they rein in investment. Majors like
Shell, Exxon Mobil and Chevron all reported
disappointing results so far this year and BP promised
bigger shareholder returns.
The index of European oil stocks has trailed those of other
sectors, falling 1 percent over the past year even as the
broader market has gained 17 percent.
With oil prices seen dropping to $105 per barrel
this year and $102 per barrel in 2015, according to the
International Energy Agency, profit margins are likely to come
under further pressure. This may force firms to abandon or
mothball more projects.
Statoil, Shell and Chevron are specialists
in offshore fields, which are especially capital intensive given
the complex engineering required to raise crude oil and gas from
beneath the ocean.
Statoil has already delayed some of its biggest investments,
such as the $15.5 billion Johan Castberg in the Norwegian Arctic
and the $7 billion Bressay in Britain's North Sea waters.
The company's exploration chief told Reuters on Friday that
it would slow its Arctic exploration efforts, one of its
priority areas, to control capital spending. Statoil has Arctic
licences from Greenland to Russia.
Statoil also said it would do less modification of existing
fields, slow rig development and cut well development times.
The company said it would introduce quarterly dividend
payments later this year, meaning it would pay one and a half
times its normal dividend in 2014, and said it would buy back
shares "more actively".
"My first impression of the strategy update is positive,"
said Kjetil Bakken, an analyst at brokerage Carnegie.
"Investment guiding is coming down compared to last year and I
think the market will like that."
To keep projects going, Statoil will bump up investment to
$20 billion this year from about $19 billion in 2013 but will
keep that level steady for years.
It is keeping exploration spending little changed, targeting
50 wells this year and bringing forward plans to the third
quarter to explore off Canada, near recent big finds.