Statoil ASA (STO) has contracted Norway’s engineering group, Aibel, for the upgrade of a gas compression capacity on the Troll A platform in the North Sea. The contract is worth NOK 2.7 billion ($483 million).
Per the agreement, Aibel is responsible for engineering, procurement, onshore and integrated offshore construction as well as completion of two new pre-compressors on the same field. The deal is the part of Statoil’s NOK 11 billion investment in Troll A platform aimed at ensuring gas production all the way till 2063. Statoil and its Troll associates have decided to extend the production life of the field by installing compressors that will alleviate wellhead pressure and thereby expedite output.
Aibel will construct and install the two compressors on the Troll platform with offshore installation commencing in 2012 and coming online in 2015. This will allow the field, with current production capacity of about 31 billion cubic meters (Bcm) per annum, to generate 120 million cubic meters of gas per day until 2018 and 30 Bcm annually until 2024. The new compressors form the final phase of the planned capacity expansion on Troll A.
Statoil holds a 30.58% share in Troll, while its partners Petoro, a Royal Dutch Shell Plc (RDS.A) subsidiary –– Norske Shell, an affiliate of Total SA (TOT) –– Total E&P Norge, and ConocoPhillips’ (COP) ancillary firm –– ConocoPhillips Skandinavia, hold 56%, 8.10%, 3.69% and 1.62% interests, respectively.
Although near-term hiccups on the production front remain for the Norwegian oil giant, we have a favorable outlook on Statoil’s long-term production, given its significant investment in Troll. The field, the largest natural gas play in that country, is located in the northern part of the North Sea and around 65 kilometers (40.4 miles) west of Kollsnes. The reserves on this field account for 48% of the remaining gas reserves on the Norwegian Continental Shelf (NCS).
We believe that the growing share of natural gas in Statoil’s NCS volume mix and its extensive interests in infrastructure assets make it the leader in the European natural gas market. The company had earlier highlighted its intentions to spend $16 billion this year (with a major emphasis on NCS) as against $14 billion spent in 2010. The company expects 2011 exploration activity, which includes the completion of 40 wells, to cost around $3 billion.
However, given Statoil’s near-term weak production outlook, we have rated it Neutral for the long term. The company also holds a Zacks #3 Rank, which translates to a short-term Hold rating.
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