Peer Companies

To truly understand the performance of Statoil we examined five peer companies that are representable for the industry and the segments Statoil operates within. These companies are British Petroleum, Chevron, Conoco Phillips, Exxon Mobil and Royal Dutch Shell. The companies are not completely equivalent to Statoil in terms of market capital and revenue. However, they provide a fairly good image of the oil and gas industry from the perspective of international oil companies, like Statoil. All companies are involved in activities both offshore and onshore in many different countries. Many of Statoil’s production sharing agreements are in fact made with some of these peer companies. When it comes to the size of the companies in terms of revenue we find that Conoco Phillips is quite similar to Statoil, only a little smaller in terms of revenue. Royal Dutch Shell is slightly larger than Statoil measured in revenue, whereas the remaining three companies (British Petroleum, Chevron and Exxon Mobil) are significantly bigger.

We re-organized the income statement and balance sheets of the peers based on the same assumptions made for Statoil. Given that all the companies operate within the same industry, we find that the financial reporting is presented quite similarly for all firms. To give a better picture of Statoil’s performance, we will compare Statoil’s ROIC measure to that of the peer companies. This helps give a better impression of whether or not Statoil is performing above, below or on par the overall oil and gas industry. A list of all performance ratios for all can be found in appendix 8.

4.4.1 Comparing Return on Invested Capital

Like Statoil, all the peers seem to perform quite well in the early years but with a declining ROIC towards 2015.

First we start by comparing the performance of the companies by including goodwill. As mentioned earlier, this measure does not remove the effect of mergers and acquisitions made in the industry.

In 2011, Chevron outperforms Statoil while British Petroleum, Exxon Mobil and Royal Dutch Shell performs approximately equivalent to Statoil. Conoco Phillips, however, performs worse than all the peers in 2011, but is the only company with increasing ROIC in 2012. In 2012 Statoil has the second to lowest ROIC of all the peers, while only British Petroleum performed worse. As for British Petroleum, some of this low operating performance may be explained by the aftershocks of the 2010 BP Deepwater Horizon oil spill¹⁰. The same cannot be said for Statoil. By 2013 the ROIC of both BP and Conoco Phillips increased while all the other

10 The Deepwater Horizon (referring to the name of an oil rig) oil spill is considered the second largest oil spill and the largest marine oil spill in history. The aftershocks of this are still visible in BP’s annual reports.

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companies continued to face a decline. By 2015 all companies experienced their lowest ROIC in the 2011-2015 timespan. Statoil has the second highest ROIC, only passed by Royal Dutch Shell while both Conoco Phillips and BP has a negative ROIC.

Figure 24: ROIC peer companies (Own production)

Looking at the ROIC excluding goodwill, we see that Statoil performs better in comparison to its peers than it did by including the goodwill. In fact, Statoil ranked second in 2011, third in 2012 and second in all following years. By 2015 Statoil had a ROIC excluding goodwill of 6.1 %, only surpassed by Royal Dutch Shell’s 6.2 % ROIC.

As discussed earlier, most of the fall in ROIC seems attributable to the falling oil prices. Comparing Statoil to the two worst and best performers in figure 25, we see that Statoil and Royal Dutch Shell have seemingly managed its revenue and expenses better than British Petroleum and Conoco Phillips. Statoil saw a total decline of 24%

in net revenue between 2014 and 2015 whereas BP and Conoco Phillips had a 37% and 44% decrease respectively. This has resulted in a larger decline in NOPLAT for both BP and Conoco Phillips compared to Statoil.

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Figure 25: NOPLAT indexed (Own production)

Although Statoil has managed to maintain the highest NOPLAT in 2015, its invested capital is also among the highest. One of the reasons for Statoil performing better than its peers in terms of revenue may be attributed to the currency effect of NOK/USD when the oil price is falling. As we will show later, there is a high negative correlation between the oil price and the exchange rate between Norwegian kroner and United States dollars.

The effect is that lower oil prices are offset by a more expensive NOK, making a barrel of oil sold more worth to Statoil than companies operating only in USD. Nevertheless, we find that Statoil performs quite well compared to the rest of the industry both with and without goodwill. Statoil has managed to maintain a fairly good operating performance given the current market conditions compared to most of its peers. One of the risk-factors may be that the invested capital continues to increase at a more rapid pace; something that could prove problematic should the oil prices not shift upwards and the profit margin does not increase along with it.

4.4.2 Comparing Return on Equity

ROIC only compares the operating aspects of the performance. If we take a brief look at how Statoil and its peers are doing while taking the financial leverage of the firms into account, we find a slightly different result than before. In 2011 Statoil was the best performer measured in ROE. However, this measure has been decreasing rapidly in all years until 2015. By 2015 Statoil actually has the lowest ROE of all firms with a negative 10%. This puts Statoil below both British Petroleum and Conoco Phillips which perform quite bad in both the ROIC and ROE measures.

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Figure 26: ROE all peers (Own production)

Given that Statoil performs well in terms of operating profitability, the low ROE tells us that Statoil’s financial leverage and net borrowing cost has a negative impact on Statoil. The middle performers measured in ROIC which were Exxon Mobil and Chevron are actually the top performers when it comes to ROE. One explanation to this may be the size of the companies. Both Exxon Mobil and Chevron are larger in terms of market capitalization and revenue than all the others. They also rank quite well in credit ratings, which in turn is likely to provide them with favourable financial conditions.