Statoil to Boost N. American Yield

Norwegian oil giant Statoil ASA ( STO - Analyst Report ) remains upbeat about its North American hydrocarbon production and expects to treble the output by the end of the decade.

Owing to the ramp-up of capital outlays in the region for the liquid-rich areas, the company aims to generate about 500,000 barrels of oil equivalent per day (BOE/d) in North America by 2020, which is an increase from the first quarter 2012 level of 149,000 BOE/d. The company’s North American portfolio experienced a compound annual growth rate of more than 20% in the last decade.

Statoil registered a 75% year-over-year production growth in the first quarter, mainly attributable to the successful commencement of its Leismer project in Canada and continued acceleration of production in U.S. shales as well as tight oil plays. Again, the positive outcome relating to the resource base in North America prompted the company to hold an optimistic outlook. The region’s resource base is now above 6 billion BOE, which is approximately 30% of Statoil's total resource base.

The company – which boosted its worldwide capital expenditure to $17 billion this year – contends that the major portion of its planned production in North America is expected to come from the U.S. shale plays comprising the Marcellus, Eagle Ford and Bakken.

Again, significant offshore development projects namely Jack/St.Malo, Big Foot and Julia in the U.S. Gulf of Mexico (GoM) and Hebron offshore Newfoundland and Labrador in Canada are expected to come online this decade. Statoil expects to generate around 100,000 BOE/d from the deep water GoM offshore assets and plans to drill 11 wells in the region as part of its 2012-2013 exploration program. Of these wells, Statoil plans to be the operator of six.

Meanwhile, Statoil — the world’s largest offshore operator — has made a discovery in the Flemish Pass basin offshore Newfoundland and Labrador, Canada. This find, Mizzen, is expected to hold between 100 million and 200 million recoverable barrels of oil equivalent and the company will likely unearth two to three exploration wells near it. Statoil operates Mizzen with a 65% interest and Husky Energy holds the rest. The company is also moving ahead with its plans for the Leismer Expansion and Corner projects onshore Canada.

We appreciate Statoil’s growing upstream presence in North America and believe that it is well positioned to sustain steady production growth for the next several years on the back of its large resource base at Norwegian Continental Shelf (NCS) as well as its operations in all major hydrocarbon-producing regions of the world.

While the company is fairly active in its development operations, its rising production costs (up 10% year over year in first quarter 2012) and a higher capex remain our concerns. Additionally, Statoil’s performance will likely be affected by the volatile macro environment, fluctuating oil and natural gas prices and geo-political disturbances.

Considering these factors, we remain Neutral on Statoil for the long term. The company, which competes with Eni SpA ( E - Analyst Report ) , also holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.