Statoil pares output target as maintenance soars

Oslo: Norway's Statoil slashed this year's oil and gas production target Wednesday, after heavy maintenance work in the third quarter weakened earnings and cast doubt on its plans to boost output by up to 14 per cent by 2012.

Statoil's shares tumbled to a one-month low amid renewed worries about its dependence on maturing and increasingly high-maintenance Norwegian fields, while news of temporary stops at two North Sea fields boosted UK gas prices yesterday.

Europe's second biggest supplier of natural gas after Gazprom cut its 2010 production forecast, as measured on its own "equity production" basis to 1.9 million barrels per day of oil equivalent (boed) from 1.925 million to 1.975 million boed.

It stuck to its 2012 equity production target of 2.06 million to 2.16 million boed but said that it expected limited output growth in 2011. "It's true they held onto their 2012 guidance but the question is whether continued problems will lead to pressure on this target," said Endre Storloekken, an analyst at Danske Bank, calling third-quarter results "sharply below expectations".

Statoil's shares were down 5.6 per cent at 122 crowns (Dh84) at 1046 GMT — their lowest level since September 30 and the biggest one-day loss in six months. The STOXX 600 European oil and gas sector index was up 0.7 per cent. Statoil's chief executive Helge Lund said that the cut in the 2010 output view reflected longer maintenance shutdowns and delayed production at some of its core fields offshore Norway, not a deterioration in reservoir quality.

Safety discussions

Adding to the worries, the head of the Safe trade union representing 2,300 Statoil workers, said he expected "more shutdowns, more often" due to increased maintenance needs offshore Norway, especially at older platforms.

The comments were made after a meeting between trade unions and Norway's labour minister about a backlog of safety issues at Statoil.

Oil majors such as Exxon Mobil and Royal Dutch Shell have reported strong third-quarter earnings as rising energy demand drove up oil and gas prices.

Analysts at Bernstein Research said the weak quarterly results highlighted Statoil's "dependence on a mature basin" where maintaining tail-end production is tough and costly.

It said the chances of meeting the 2012 outlook "look even slimmer than before" and urged Statoil "to do much more to address its underlying weaknesses". Statoil is the fourth-largest licence holder in the US Gulf of Mexico and has ambitious plans to ramp-up production outside Norway over the coming years.

It said its Peregrino field offshore Brazil would come on stream at the end of the first quarter of 2011, earlier than previously envisaged, and Statoil expects new fields and ramp-ups to boost overall production by 350,000-400,000 boed by 2012. British gas prices for December rose nearly 2 per cent after Statoil said it decided "to temporarily reduce" production from the Gullfaks South and Kvitebjoern fields to secure sufficient reservoir pressure to drill additional wells more safely.

Adjusted operating profit in the third quarter fell to 26.7 billion crowns from 31.1 billion a year earlier and missed all 19 analysts' predictions given in a Reuters poll, which ranged from 28.4 billion to 34.2 billion crowns. Statoil said its quarterly result was positively affected by a 14 per cent increase in liquids prices and an 8 per cent increase in gas prices.