Norwegian oil giant, Statoil ASA (STO - Analyst Report) intends to offload its stake in the West Qurna 2 project in the southern Iraq to the Russian behemoth Lukoil OAO. The deal mainly reflects Statoil’s move to concentrate on its resources located in a less hazardous regions while making Lukoil the sole overseas associate in one of Iraq's biggest new oil ventures.
Per the deal, which won the Iraqi approval, Statoil will sell its 18.75% stake in the West Qurna Phase-2 field development project to the operator Lukoil, which entered into a 20-year service contract to develop the giant oilfield in 2009. Upon closure, the Russian firm will be entitled with a 75% interest and an Iraqi state oil company will own the remaining 25%. The project aims to produce 1.8 million barrels of oil per day from the field in southern Iraq in due course of time.
The latest divestiture highlights Statoil’s endeavor to turn its attention to less-risky resources. The company is planning huge investments in offshore Norway and in the U.S. Even though Iraq possesses the world’s fourth-largest proven reserves of about 143.1 billion barrels of conventional crude, approval delays, war and disruption have worn out the sector.
Of late, Statoil − the world’s largest offshore operator − is increasingly shifting its focus to the still-unexplored areas of the Norwegian Sea and aims to achieve an equity production of above 2.5 million barrels of oil equivalent in 2020. In 2011, Statoil delivered strong exploration results, adding more than 1 billion barrels to its resource base. The company also made significant discoveries in the mature North Sea as well as in the Barents Sea, reaffirming the potential that the Norwegian Continental Shelf (NCS) holds.
Statoilis planning a new rig concept to enhance the recovery rate of the mature fields on the NCS. The company is set to launch a tender for a minimum of two rigs known as Category J, for drilling wells at North Sea fields such as Gullfaks, Mariner as well as Johan Sverdrup, which is set to come online in 2017.
While Statoil is fairly active in its development operations, we remain on the sidelines due to its weak fourth quarter 2011 production profile. Equity and entitlement production in the fourth quarter increased only by 2% and 1%, respectively, from the year-earlier period. Hence, our long-term Neutral recommendation remains unchanged. The company, which competes with Eni SpA (E - Analyst Report), holds a Zacks #3 Rank (short-term Hold rating).