Statoil abandons production target to focus on returns

OSLO: Norwegian oil major Statoil abandoned its 2020 production target and slashed investment plans on Friday, joining rivals in reining in runaway spending and targeting returns over output. Statoil, which has grown into a global player with big finds in places like Brazil, Canada and Tanzania, said it would spend $5 billion less than planned in the next three years, pushing its 2020 production targets back by 3 to 4 years.

Global oil investment is expected to rise by 4-6 percent this year - far less than the double-digit growth of recent years - with the biggest offshore players such as Shell , Chevron and Statoil expected to tighten their belts the most.

"Our strategy for value creation and growth remains firm, but we are making some important changes," Chief Executive Helge Lund said. "Stricter project prioritisation and a comprehensive efficiency program will improve cash flow and profitability."

Oil firms are cutting spending after cost growth far outpaced inflation for several years, squeezing profit margins at a time when oil prices are easing due to sluggish demand growth and fresh supply from low-cost regions.

Brent crude now trades at $107 per barrel, below 2013 levels, and the International Energy Agency sees it falling to $105 per barrel this year and $102 per barrel in 2015.

Statoil was among the biggest spenders and has sold $18 billion worth of assets since 2010, including producing fields, pipelines and its retail chain, to cover investment costs and dividends. POSITIVE MOVES Hoping to win over investors, the firm said it planned to introduce quarterly dividend payments this year 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.

Still, analysts said upside for the stock was limited as it trades broadly in line with 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.

Statoil shares were down 2.6 percent in early trading, underperforming a flat European oil and gas price index.

Statoil plans to bump up investment to $20 billion this year from about $19 billion in 2013 but will keep that level steady for years, saving on reduced rig commitments, reduced modification spending and lower well construction time.

With the changes, Statoil is now targeting positive free cash - after dividends and excluding acquisitions or asset sales - from 2016, assuming oil prices of $100 per barrel, about three years earlier than analysts had predicted.

It plans to keep exploration spending broadly unchanged this year but to drill just 50 wells, down from 59 in 2013.

In the fourth quarter, Statoil's net operating profit fell 4 percent to 43.9 billion crowns ($7.09 billion), just short of expectations of 44.3 billion crowns, while its equity production was 1.945 million boe per day, 20,000 boe short of forecasts.