Statoil ASA (STO) was granted approval to use the Deepsea Atlantic mobile facility for production drilling on Gullfaks. The permission is mainly for the drilling and completion of three wells (34/10 F-3 AH, 34/10 F-1 H and 34/10 G-4) in production licence 050.
The Norway-based major international integrated oil and gas company expects September 10 to be the start-up date for drilling operations – beginning with 34/10 F-3 AH – that would extend to approximately 385 days.
The Greater Gullfaks area, located in the Norwegian North Sea, comprises blocks 34/7, 34/8, 34/10 and 33/12. Discovered in 1978, Gullfaks was the first field in the area. Statoil enjoys the operatorship of the larger portion of the Greater Gullfaks area with a 70% interest, while Petoro holds the remaining 30%.
We believe Statoil’s increasing shift of focus to the still-unexplored areas of the Norwegian Sea is appreciable. Though the company has operations in all major hydrocarbon-producing regions of the world, it has an upstream focus on the Norwegian Continental Shelf (NCS). Consequently, it remains well positioned to sustain its steady production growth for the next few years on the back of its large resource base at NCS.
Furthermore, Statoil recently reported impressive second quarter 2011 results, buoyed by significant year-over-year improvement on higher liquids prices. Again, the company’s ventures with domestic and international resources for upstream growth are encouraging with its target of 50% oil recovery rate by 2020.
However, Statoil’s 2011 oil and gas production forecast of flat or lower versus its 2010 level, raises our apprehensions. The tempered outlook was mainly due to field maintenance. Again, the company highlighted that restrictions in the existing production permits and temporary contentions at Gullfaks will likely depress growth.
Hence, although we are upbeat on Statoil’s upstream operations, we remain on the sidelines due to the company’s lower production target and weak reserve replacement ratio (87% in 2010).
Competition from its peers BP Plc (BP), Royal Dutch Shell plc (RDS.A) and Total SA (TOT) is also a concern.
Our long-term Neutral recommendation remains unchanged and the company holds a Zacks #3 Rank (short-term Hold rating).
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