Strong demand for oil in countries like China and India will keep prices high, Sweden’s Lundin Petroleum said on Wednesday as it reported a doubling in second-quarter core profit.
The Swedish oil explorer and producer raised its production guidance for the year and gave an upbeat outlook for its Avaldsnes field in the Barents Sea, an area where Statoil recently discovered oil, saying an initial appraisal looked “extremely encouraging”.
Investors are keeping a close eye on oil prices, with Brent crude LCOc1 almost $12 below this year’s peak above $127 as fears grow that major economies may slip back into recession.
CEO Ashley Heppenstall said despite the short-term uncertainties, oil prices would remain strong.
“Oil prices will remain well above $100 a barrel in the short term,” he told Reuters.
“Let’s not forget that the demand today is not coming from the U.S.; certainly the growth is coming from the developing world, particularly China and India, and the growth rates there are still very strong.”
“They are beating both our and consensus expectations, both top-line and earnings per share,” said Kristoffer Dahlberg, an analyst at RS Platou Markets.
“They revised up the production guidance for 2011, which is very good … and they are of course very bullish on the large Avaldsnes discovery … So it is a very, very strong report, basically.”
Heppenstall said a second appraisal of Avaldsnes was underway and would be complete at the end of August. He repeated a forecast for a range of 100-400 million barrels of oil for the field and declined to provide more detailed estimates.
Lundin shares, which have more than doubled in the past year on the back of a sharp rise in oil prices, new discoveries and strong production, climbed as much as 3 percent in early trade, though they were down 1.3 percent by 1204 GMT in a broadly weak market.
That compared with a 2 percent fall in the STOXX Europe 600 Oil & Gas index .
Lundin said higher than expected production and oil prices well over $100 per barrel helped boost earnings and strengthened the company’s cash flow.
Earnings before interest, tax, depreciation and amortisation were $267 million in the second quarter, beating $237 million seen in a Reuters poll and almost double profits in the same period a year ago.
It raised its production guidance for 2011 to 31,000-34,000 barrels of oil equivalents per day from a previous forecast for 28,000-33,000 when it said there were uncertainties relating to wells in its Alvheim field in Norway.
It now expects a further two Alvheim development wells to come into production during the second half of the year as well as first oil from the Gaupe field, also in Norway.
“It was an underlying strong performance driven by higher production than forecast, and so of course the production targets are raised a bit,” said one analyst.
The company, whose main business is to look for hydrocarbon deposits under the sea floor to sell or develop under its own name, said its low sulphur oil reserves located primarily in Norway would continue to fetch a premium to Brent prices.
Lundin produces most of its oil in Norway and also pumps oil in Indonesia, Russia and Tunisia among other countries.