We are downgrading our recommendation on Statoil ASA (STO) ADRs to Underperform from Neutral. The company reported lower-than-expected earnings in the third quarter, mainly due to high exploration costs and low liquids production with steep operating costs in Norway.
While reiterating its 2012 guidance, management now expects 2013 production to decline sequentially versus the previous flat forecast. While Statoil is fairly active in its development operations, we remain apprehensive as hiccups remain in the company's production growth for the time being.
Considering the aforementioned reasons, we are downgrading our long-term recommendation. Our $23 price objective, based on the 2013 P/E multiple of 8.0x, supports this view.
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