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Norwegian energy giant Statoil ASA (STO - Analyst Report) is all set to boost the recovery rate of the oilfields in the Norwegian Continental Shelf (NCS) by an added 10% as it has started building the country's biggest research center.

This center − located near the company's existing research center at Rotvoll in Trondheim, in the north of Norway − will cost around $42 million (NOK 240 million) to the company. It will assist Statoil to maximize output at fields where it remains the operator or co-partner both on the NCS and worldwide.

The unique 2700 square-meter center will comprise four floors that will prioritize areas of technology such as drilling, reservoir mapping and advanced injection techniques. It will be well equipped with an industrial CT scanner that is 100 times more potent than its medical equivalent. This center is expected to be completed by the end of 2013.

Increased oil recovery (IOR) is considered as the money-spinning method of generating reserves already in place with the help of existing production infrastructure. Hence, this results in substantial revenue gains. Presently, Statoil employs about 3000 people for working on developing a range of 300 IOR activities.

At August end, the company stated that it was targeting a 60% average oil recovery rate from its NCS fields. The world's largest offshore operator − Statoil − already holds the leading position in oil recovery with a recovery rate of 50% last year compared with a global oil recovery rate of just 35%.  It also marked a 1% year-on-year rise in oil recovery for Statoil. The 1% rise in oil recovery equates to 327 million barrels of oil or more than NOK 200 billion at an oil price of $100 per barrel. Statoil is also deploying nearly half of its annual research and development (R&D) budget of $490 million (NOK 2.8 billion) for testing and developing technology for IOR.

Recently, Statoil announced the start of spudding of the appraisal well 16/2-14 in PL 265 in the Norwegian North Sea. This new appraisal emphasizes Statoil’s belief in the exploration potential of the mature region of NCS.

We have a favorable outlook on Statoil’s long-term production growth, given the company’s growing upstream presence in the emerging basins of the Barents Sea, West Africa and the deepwater U.S. Gulf of Mexico. We also believe that the growing share of natural gas in Statoil’s NCS volume mix and its extensive interests in infrastructure assets strengthen its leadership position in the European natural gas market.

Statoil, which recently contracted Schlumberger Limited (SLB - Analyst Report) for electric wireline logging services on the NCS, carries a Zacks #2 Rank, which translates to a Buy rating for a period of one to three months. Longer term, we maintain a Neutral recommendation on the stock.

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