Falling returns force Statoil to slash growth plans

* Pushes 2020 production target back by 3-4 years

* Slows Arctic oil exploration

* Plans quarterly dividends, more active share buy-backs

* Follows industry trend of cutting spending

* Shares jump 6 pct to highest in almost 2 years

By Gwladys Fouche and Balazs Koranyi

LONDON/OSLO, Feb 7 (Reuters) - Norway's Statoil (Berlin: DNQ.BE - news) abandoned its 2020 production target on Friday and slashed spending plans so it could pay more to shareholders, becoming the latest oil major to acknowledge the fading appeal of new energy projects.

Rising investment costs and falling prices have cut the potential returns on new oil and gas plays, especially more ambitious ones that present greater risks, prompting some companies to delay or curtail them.

Statoil (Xetra: DNQ.DE - news) has been one of the top spenders, ploughing much of the $18 billion it earned since 2010 from selling producing fields, pipelines and its retail chain to fund an aggressive global expansion of exploration and production.

Its wild success in exploration - it found more reserves than any other conventional energy firm last year - risks becoming a burden as it now has a plethora of projects to monetise across every continent.

Statoil is a pioneer in Arctic oil exploration. It has also spent heavily on U.S. shale assets, leaving it exposed to depressed U.S. gas prices, dragging down its profits last year.

"Given market circumstances we need to find a better balance between growth and return that also gives us earlier free cash flow so that we can also service the shareholders," Chief Executive Helge Lund told Reuters. "This industry does not have the best track record in terms of cost discipline."

Lund has made Statoil a global player with big finds in places like Brazil, Canada and Tanzania. Now the company aims to spend $5 billion less than planned in the next three years and is pushing back a 2020 target to increase output by a quarter to 2023 or 2024 so it can raise dividends and buy back shares.

Statoil shares dropped 3 percent soon after Friday's announcement. But, in a sign that investors welcomed Lund's move, the stock changed course and was up 5.8 percent by 1500 GMT, its highest in almost two years. The sector index was up 0.3 percent.

"Statoil becomes the latest European oil major to fall into line with the market's demands for a better balance between capex and production," brokerage Investec (LSE: INVP.L - news) said in a note. "But the aim to cover capex and dividends in 2016 at $100 per barrel still looks a stretch on our forecasts."

Investec said its "sell" rating on Statoil shares was under review.

Other analysts said upside for the stock was limited as Statoil was trading broadly in line with its peers after erasing a sizable discount over the past several months.

"Given Statoil's very mixed history for its guidance, we doubt the company will get very much bang for the bucks from these statements, at least in the short term," Swedbank (Other OTC: SWDBF - news) said.

CASH LEAK

After dividends, several energy majors risk bleeding cash for years to come until they rein in investment. Majors like Shell (LSE: RDSB.L - news) , Exxon Mobil (TLO: XOM-U.TI - news) and Chevron (Amsterdam: CHTEX.AS - news) all reported disappointing results so far this year and BP (LSE: BP.L - news) promised bigger shareholder returns.

The index of European oil stocks has trailed those of other sectors, falling 1 percent over the past year even as the broader market has gained 17 percent.

With oil prices seen dropping to $105 per barrel this year and $102 per barrel in 2015, according to the International Energy Agency, profit margins are likely to come under further pressure. This may force firms to abandon or mothball more projects.

Statoil, Shell and Chevron are specialists in offshore fields, which are especially capital intensive given the complex engineering required to raise crude oil and gas from beneath the ocean.

Statoil has already delayed some of its biggest investments, such as the $15.5 billion Johan Castberg in the Norwegian Arctic and the $7 billion Bressay in Britain's North Sea waters.

The company's exploration chief told Reuters on Friday that it would slow its Arctic exploration efforts, one of its priority areas, to control capital spending. Statoil has Arctic licences from Greenland to Russia.

Statoil also said it would do less modification of existing fields, slow rig development and cut well development times.

The company said it would introduce quarterly dividend payments later this year, meaning it would pay one and a half times its normal dividend in 2014, and said it would buy back shares "more actively".

"My first impression of the strategy update is positive," said Kjetil Bakken, an analyst at brokerage Carnegie. "Investment guiding is coming down compared to last year and I think the market will like that."

To keep projects going, Statoil will bump up investment to $20 billion this year from about $19 billion in 2013 but will keep that level steady for years.

It is keeping exploration spending little changed, targeting 50 wells this year and bringing forward plans to the third quarter to explore off Canada, near recent big finds.