Total, Statoil profits plummet

Wed 04 Nov, 2009 11:10

By Tom Bergin

LONDON (Reuters) - France's Total and Norwegian rival Statoil have added to the downbeat tone from the oil industry, promising to tackle a tough environment with cost cuts as they announced big drops in third-quarter profit.

Both companies have benefited from a recovery in crude prices in recent months but Statoil said the price rise had a weak foundation.

Norway's largest company offered little hope on Wednesday that natural gas prices -- battered by lower demand due to the economic crisis -- would recover any time soon, while Total, Europe's largest refiner by capacity, said crude processors faced a "very difficult" environment.

"Although we see signs of improvement in the global economy, there is no firm evidence that industry investment, employment and private consumption have recovered in a sustainable way," Statoil chief executive Helge Lund said.

"This calls for cautiousness," he said.

Total's adjusted third-quarter net income fell 54 percent to 1.87 billion euros (1.67 billion pounds), in line with an average forecast of 1.84 billion, according to Thomson Reuters I/B/E/S.

Statoil's adjusted net profit fell 40 percent to 9.3 billion Norwegian crowns (980 million pounds) in July-September, ahead of a mean forecast of 8.4 billion in a Reuters poll.

Adjusted net income strips out gains or losses from one-off items such as asset sales, and unrealised gains related to changes in the value of fuel inventories. Analysts consider it the best measure of a company's underlying performance.

The results compared with a 47 percent drop in underlying earnings at London-based BP and a 67 percent drop at Europe's largest oil group by market value, Royal Dutch Shell .

Total shares were up 0.3 percent at 41.08 euros at 10:56 a.m., while Statoil shares traded up 2.3 percent at 138.8 crowns, compared to a 0.5 percent rise in the DJ Stoxx European oil and gas sector index .

BRIGHT SPOT

One positive note in the companies' statements was on oil and gas production.

Big oil companies have seen their output fall in recent years as existing fields decline and new finds become scarcer, partly because western companies face investment restrictions in many oil-rich countries like Saudi Arabia and Russia.

Statoil said production rose 10 percent in the quarter compared to the same period in 2008, to 1.71 million barrels of oil equivalent per day (boepd) thanks to new field startups and reduced hurricane impacts at its Gulf of Mexico fields.

Total said its production of oil and gas rose a 0.5 percent in the quarter to an average 2.243 million boepd, against some predictions of a drop.

Bertrand Hodee, an oil analyst at Kepler in Paris said this showed output was "back on track" after a weak period.

Rising oil prices also allowed the companies to reduce gearing ratios, which should boost faith that their generous dividends -- much prized by investors in the sector -- can be maintained.

"(Lower gearing) should reassure income investors over the sanctity of Total's future dividend distribution," said David Thomas, an oil analyst at Citigroup.

Both companies' shares have a dividend yield of more than 4 percent.

Analysts welcomed the comments on cost cuts but questioned Statoil's failure to give ambitious targets.

"We have not seen the same level of cost deflation in the portfolio as witnessed within the portfolio of the larger Majors and expect the maturing NCS assets to prevent any cost deflation for the company," Oswald Clint, oil analyst at Bernstein, said. (Additional reporting by Wojciech Moskwa in Osolo; Editing by Dan Lalor and Karen Foster)