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Norwegian integrated oil and gas player, Statoil ASA (STO - Analyst Report) has encountered a small deposit of oil near its Norne field in the Norwegian Sea. The prospect is located about 7.5 miles south of the Norne field. Statoil is in the process of completing drilling of the wildcat well 6507/3-10 on production license 159C, where it is the operator. This is the first exploration well on production license 159C.
The purpose of the well was to prove petroleum in reservoir rocks of the Middle and Early Jurassic Age. The well encountered a 10-meter net oil column in Middle Jurassic (the Garn formation). In addition, oil was encountered in a 2–3 meter thin sand layer in the upper part of the Tilje formation. A preliminary estimate of the size of the discovery is less than 6.3 million barrels of oil. The discovery's commerciality is yet to be assessed.
Statoil has operations in all major hydrocarbon-producing regions of the world, with an emphasis on the Norwegian Continental Shelf (NCS). We believe that Statoil is well positioned to sustain steady production growth for the next few years on the back of its large resource base at NCS.
We believe production growth from operations is a key component for the company’s overall annual upstream growth plans over the next few years. Statoil has progressed on various projects and expects to make significant additions to its resource base in the coming years. This is evident from the company’s estimated compound annual growth rate of 3% to 4% during 2016–2020. Hence, Statoil’s progress on the new prospect is a significant move.
One of the world's biggest sellers of crude oil, Statoil is also a major supplier of natural gas in the European market and has substantial industrial operations. Statoil has service stations in the Scandinavian countries, Ireland, Poland, the Baltic States and Russia. It is also one of the world's most environmentally efficient producers and transporters of oil and gas.
Going forward, Statoil expects to grow its yield by 19% to over 2.5 million barrels per day by 2020 from 2.1 million barrels per day (bpd) currently. The majority of this growth is expected from the U.S., with production projected to increase nearly three times to around 500,000 barrels per day from 150,000 bpd now. The first quarter of 2013 saw growth of nearly 75% from the prior-year quarter. This shows that the company is moving in line with its goal of reaching over 500,000 barrels of oil equivalent per day.
Statoil holds a portfolio of various high-quality assets. In Mar 2013, the company emerged as the highest bidder on 15 leases in the central U.S. Gulf of Mexico (GoM) lease sale. This addition to its portfolio gives it control in over 340 leases in the GoM and helps it to maintain its leadership position.
The company retains interest in several major discoveries in the GoM, including the recently approved Julia field, Stampede, Vito and its first GoM-operated Logan discovery.
Though we have a favorable stance on Statoil's long-term production growth based on its growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwater U.S. Gulf of Mexico, we remain cautious about its operating risk in Algeria.
Statoil holds a Zacks Rank #4 (short-term Sell rating). However, there are other stocks in the oil and gas sector – Matador Resources Company (MTDR - Snapshot Report), Seacor Holdings Inc. (CKH), and Magellan Midstream Partners LP (MMP - Analyst Report) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.