Norwegian oil major Statoil ASA ( STO - Analyst Report ) has made a gas discovery — Lavani-2 — in Block 2, offshore Tanzania. This is the company’s third find in the East African country this year.

Located in Palaeogene, the Lavani-1 discovery reservoir was successfully appraised by Statoil-operated Lavani-2. Statoil and its partner ExxonMobil Corporation ( XOM - Analyst Report ) hit upon a separate and large gas-bearing reservoir in the Cretaceous when the two were deepening a well to its second target. The Lavani-2 well assessed the deeper Saffron target and this new discovery is expected to have considerable potential.

Located about 5 kilometers southeast of the Lavani-1 discovery well and 20 kilometers south of the Zafarani-1 well, Lavani-2 was drilled by Ocean Rig Poseidon to reach a total depth of 5270 meters in water depths of 2580 meters. Lavani-2 well also supplies data that will be integrated into models to help establish the most favorable development concept for a potential natural gas development in Tanzania.

Statoil holds a 65% working interest, while ExxonMobil holds the remaining 35% in Block 2. Statoil’s presence in Tanzania dates back to 2007, when it received the license for Block 2.

Statoil’s ambitious drilling campaign comprises four wells in one year. Lavani-2 represents the third well and appraisal of the Zafarani discovery will be the fourth one. Earlier estimates show that the development cost of the license could go up to around $10 billion.

Discovery forms an integral part of growth for Statoil. Further, these discoveries confirm Statoil’s advantageous position in the world’s fastest growing gas hub of East Africa. The Geological Survey has projected Kenya, Tanzania, Mozambique, Madagascar and the Seychelles to hold about 441 Tcf of gas. The latest discovery demonstrates Statoil's exploration strategy of focusing on high-impact prospects is paying off.

Statoil holds a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation.