Why Statoil ASA(ADR) (STO) Earnings Fell

To offset production declines at its mature North Sea fields, the company plans to drill 50 wells and allocate roughly $3.5 of its $19 billion capital budget to exploration activity this year. For the remainder of the year, investors may want to watch the company’s progress in four crucial projects, including its Barents Sea drilling campaign, its operations in the Bay du Nord on the Canadian east coast, its Sake prospect in the Gulf of Mexico, and its Cachalote & Buzio ventures in Mozambique.

In addition to these ventures, Statoil has major projects due to start up in 2013-2016 and in 2017-2020 that should provide additional installed capacity of nearly 2000 mboe per day and help the company boost production from 2 million barrels of oil equivalent a day to 2.5 million by 2020.

However, further cost inflation and delays in project start-ups are two major risks to consider. If any of its major growth projects get delayed, the company likely won’t cut its dividend but may be forced to resort to additional asset sales or new equity issuances to compensate for the reduction in expected cash flow.

The article Why Statoil Earnings Fell originally appeared on Fool.com is written by Arjun Sreekumar.

Fool contributor Arjun Sreekumar owns shares of Chesapeake Energy. The Motley Fool recommends Statoil (ADR) and Total SA (ADR). It has the following options: long January 2014 $30 calls on Chesapeake Energy.

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