Statoil to Abandon Karama Block

Norwegian oil giant Statoil ASA (STO - Analyst Report) and its partner Pertamina Hulu Energi have decided to hand over their stakes in the deepwater Karama block to the government of Indonesia. The block is situated offshore Makassar Strait.

Upon completion of drilling operations at the three wells – carried out by Transocean Ltd.’s (RIG - Analyst Report) drillship GSF Explorer – both the companies realized that there is no hydrocarbon reserve in the block.

Per the agreement, the exploration activities performed by Statoil include the study of geology and geophysics, 3D seismic and the drilling of three wells.

Statoil has fulfilled all the commitments and obligations of exploration operations specified in the contract agreement for six years. The total exploration project in the work area is estimated to have cost about $271 million. Statoil will be responsible for the entire cost, as the exploration efforts did not produce any positive outcome.

As the operator of the block, Statoil held a 51% interest in the block, while Pertamina Hulu Energi held the remaining 49% interest.

Statoil has operations in all major hydrocarbon-producing regions of the world, with an emphasis on the Norwegian Continental Shelf (NCS). This is likely to help the company offset the costs incurred for exploring the Karama block. We believe the company’s growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwater U.S. Gulf of Mexico will enable Statoil to sustain its production growth for the next few years.

Last month, Statoil purchased a 25% participating interest from Brazilian metals and mining firm Vale SA (VALE - Analyst Report) in BM-ES-22A in the Espirito Santo Basin, offshore Brazil. Block BM-ES-22A is operated by Petróleo Brasileiro S.A. or Petrobras (PBR - Analyst Report) with equity of 75%, while Vale holds the remaining 25% stake.

Statoil holds a Zacks Rank #3, which is equivalent to a Hold rating for a period of one to three months.