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Statoil shows a return to better times within Big Oil's grasp

It posted highest Q1 net income since 2014, an indication of what other major energy companies will report this week


STATOIL ASA showed that a return to profit levels from the era of US$100 a barrel is within the grasp of the world's oil giants.

The Norwegian producer posted the highest net income since 2014, giving a first indication of what's in store for investors in the other major energy companies that present first-quarter earnings this week. Big Oil is expected to report the highest level of free cash flow in 12 years, thanks to a recovery in crude prices and drastic cost cuts.

While the outlook is improving, the industry isn't signalling a return to the free-spending boom prior to the 2014 price slump. On the contrary, Statoil aims to keep a tight rein on production costs and focus on cutting debt.

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Royal Dutch Shell Plc and Total SA will report earnings on Thursday, and US rivals Exxon Mobil Corp and Chevron Corp on Friday. Statoil could be a good proxy for its bigger competitors' exploration and production divisions, which stand to gain most from higher oil prices. However, the state-controlled Norwegian company has little in the way of refining - a business that usually suffers when crude costs are rising.

Statoil's adjusted net profit rose to US$1.47 billion in the first quarter from US$1.11 billion a year earlier, just slightly missing the average forecast of US$1.5 billion in a Bloomberg survey of analysts. It was the highest level since the second quarter of 2014, before oil prices started falling.

"Following strong results from our improvement work we have a lower cost base, enabling us to capture high value from higher prices and deliver solid earnings across all segments," chief executive officer Eldar Saetre said in a statement. "We continue our strong operational performance."

Cash generated from operations rose to US$7.13 billion from US$6.24 billion, a "very solid" result and "a 28 per cent beat compared to our estimates for the quarter", Danske Bank A/S analyst Anders Holte said in a note.

Statoil reduced its net debt ratio to 25.1 per cent from 29 per cent three months ago. Production of oil and gas reached 2.18 million barrels of oil equivalent a day in the quarter, up from 2.146 million barrels a year ago.

Like all oil producers, Statoil is reaping the benefits of a rally in crude prices supported by production cuts from Opec and its partners and geopolitical tensions. Benchmark Brent averaged US$67 a barrel in the first quarter, up from US$55 a year earlier, and exceeded US$75 this month for the first time since 2014.

Statoil raised its own assumption for the price of Brent to US$63 a barrel in 2018 from US$60 three months ago.

The company signalled already in February it was turning the page on the oil-price crisis, raising both spending and dividends. On Wednesday, it reiterated plans to invest US$11 billion this year and pay a dividend of 23 cents a share, the same as last quarter. It also maintained its targets for exploration and output growth.

Mr Holte said he expects Statoil to boost capital expenditure later this year, probably in the third quarter, if oil prices continue to trend higher.

In an effort to highlight plans to increase investments in renewable energy in the coming years, the 67 per cent state-owned Norwegian company is set to change its name to Equinor next month, shedding the reference to "oil". It still plans to direct as much as 85 per cent of its investments into petroleum projects by 2030. BLOOMBERG