Statoil to Start Brazil Production

Norway-based Integrated StatoilHydro ASA (STO) intends to start production at the Peregrino heavy-oilfield in Brazil in early 2011. The company will start drilling wells in the first half of 2010 for this purpose. 

The field is situated 85 kilometers off the coast of Rio de Janeiro state near Cabo Frio and has an estimated 460 million barrels of recoverable oil. The company expects peak production to reach 100,000 barrels per day in 2012. 

Until 1997, foreign companies were barred from the oil blocks of Brazil. Now the scenario has changed and many international integrateds are increasing production at their Brazilian blocks. This includes Chevron (CVX), Royal Dutch Shell (RDS.A) and ExxonMobil (XOM). 

Given the maturity of the Norwegian Continental Shelf (NCS) region, where StatoilHydro has significant upstream focus, the company is looking for development of various international assets. The production from the Brazilian field is an evidence of management’s continued focus on strengthening the company’s international assets. 

This along with the last year’s Plains Exploration acquisition has further consolidated Statoil’s position in the deepwater GoM region and enhanced the company’s long-term prospects from international operations. 

Despite a number of major acquisitions, Statoil has not been able to meaningfully improve its reserve-replacement performance. While the near to medium term sustainability of the company’s NCS volumes is not in doubt, there is limited visibility with respect to the company’s ability to replace those volumes in the long run. Consequently, we rate the stock as Neutral.

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