Norwegian oil firm Statoil ASA (STO”>STO) made its fourth oil discovery at the Gullfaks field off Norway in the past 10 months. The company’s drilled well, Skinfaks South, is estimated to have almost 1.9 to 6.9 million barrels of oil equivalents in reserve.
Located in block 33/12 in the North Sea, the well was drilled to a depth of 3722 meters below sea level with the semi-submersible COSL Pioneer rig. Statoil controls the operating rights of the concession with a 70% interest, while state-owned holding company Petoro AS has the remaining 30%.
Statoil encountered 262 feet light oil column in Mid-Jurassic reservoir rocks and is in the process of connecting the find to the existing infra-structure in the region.
The Gullfaks field, discovered in 1978, was estimated to hold 2.5 billion barrels of oil equivalent. With the discovery of subsequent fields such as Gullfaks South, Rimfaks and Valemon, the reserve of the area increased by another billion barrels of oil equivalent.
Statoil is conducting extensive exploration activities in and around Gullfaks over the last one year and has struck oil at Rutil, Opal and Brent 10 A/B. These are expected to boost volumes by 50 to 100 million barrels of oil equivalents.
Statoil is concentrating on utilizing infrastructure-led exploration (ILX) strategy, using with it intends to drill 40% of its wells in 2012.
We have a favorable outlook on Statoil's long-term production growth, given its growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwater of the U.S. Gulf of Mexico. We also believe that the growing share of natural gas in Norwegian Continental Shelf volume mix and its extensive interests in infrastructure assets enable it to play a leading role in the European natural gas market.
Of late, Statoil has been collaborating on lucrative deals that will enhance its operating base. Recently, the company won exploration bids for Canada’s East Coast along with U.S.-based Chevron Corporation (CVX”>CVX) and Spain's Repsol YPF SA. This bid is expected to fortify Statoil's presence in the Canadian energy sector and enable it to build strong positions in new offshore clusters.
However, our optimism is clouded by the weak reserve replacement ratio exhibited by Statoil. We are also apprehensive of the volatile macro environment, fluctuating oil and natural gas prices and geo-political disturbances that could hurt the company’s performance.
Hence, we foresee limited upside potential to the stock and expect Statoil to perform at par with the broader industry. Statoil currently retains a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
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