Statoil ASA (STO) has received approval from the Norwegian Ministry of Petroleum and Energy for the development of its Visund South oil field in the northern part of the North Sea. The Visund venture pioneers the company’s fast-track development project.
Production at Visund is slated to commence production in the third quarter of 2012, with a subsea template already underway. Located 10 kilometers from Gullfaks C and Visund A platforms in the North Sea, Visund South involves a subsea installation, which will be tied to Gullfaks C for processing. Visund South field, comprising Pan and Pandora discoveries, has potential reserves of 67 million barrels of oil equivalent.
Statoil, the operator of the Visund South with 53.2% interest, believes the field promises volume growth for over 15 years. The field is also partnered by Petoro with 30%, ConocoPhillips (COP) with 9.1%, and Total SA (TOT) with 7.7% interests.
The subsea template will be installed at the Visund South field this month and its drilling is expected to commence in August. Importantly, this is the first model to be manufactured on a standard catalogue for subsea equipment that will be used to provide quicker and cheaper hardware for future fast-track projects.
Recently, the company entered into a gas supply agreement with Scottish and Southern Energy (“SSE”). As per the agreement, Statoil will provide 500 million cubic meters of natural gas annually, for 10 years, to SSE's Peterhead gas power plant in Scotland. Deliveries are slated to begin in the final quarter of 2012.
Statoil is a major international integrated oil and gas firm, with operations in all major hydrocarbon-producing regions of the world, with an emphasis on the Norwegian Continental Shelf (NCS).
We believe that Statoil is well positioned to sustain its steady production growth for the next few years on the back of its large resource base at NCS. As of year-end 2010, the company had approximately 5.33 billion oil-equivalent barrels in proved reserves.
However, we remain apprehensive about Statoil’s reserve replacements that have been relatively weak. Despite a number of major acquisitions, Statoil has not been able to meaningfully improve its reserve-replacement performance. The company’s reserve replacement was 87% in 2010. Although the company stated that it will increase its resources base by 30%, we believe this is a long-term story.
We maintain our long-term Neutral recommendation for the stock. Statoil currently retains a Zacks #3 Rank, which translates to a short-term Hold rating.
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