Statoil: Snatch Up This Norwegian Oil Producer

by Aaron Levitt | September 4, 2013 9:36 am

Statoil: Snatch Up This Norwegian Oil Producer

When investors and financial journalists look at integrated energy giants, firms like Exxon Mobil (XOM[1]), Chevron (CVX[2]) and even beleaguered BP (BP[3]) often top their go-to lists. While that’s all fine and dandy — after all, these are some of the biggest energy producers in the world — some of the lesser-known majors tend to fall through the cracks.

That’s a real shame, because several of these smaller giants[4] are striking it rich with big new elephant fields, solving the critical need of raising their production quotas and reserves.

One of those doing right by shareholders is Norwegian superstar Statoil (STO[5]). The firm recently struck another massive pocket of oil off Canada’s eastern coast. The discovery — along with other recent big finds — is exactly what investors should be looking for when it comes to the majors.

The Flemish Pass Plus Others

Putting the exploration in “exploration and production,” Statoil continues to canvas the globe in search of oil. The Norwegian energy producer’s latest and greatest find builds on its flourishing exploration program in Canada’s Flemish Pass Basin, located about 300 miles northeast of St. John’s, Newfoundland.

While the actual resource and reserve potential of the deepwater prospect has yet to be determined, it comes on the heels of two other huge drilling programs in the region. Partnering with Husky Energy (HUSKF[6]), Statoil successfully struck oil and natural gas[7] at its Harpoon field back in June. The Harpoon is only about 12 miles away from the newly tapped Bay du Nord.

The key to these new fields’ potential is linked to the previously drilled Mizzen discovery. That field was found back in 2009 and is about 12 miles away from Bay du Nord in the other direction. Initial resource estimates for Mizzen are a whopping 100 million to 200 million barrels of oil.

It stands to reason, given the proximity of the three fields in the Flemish Basin, that Statoil could be looking at some serious production muscle and synergies as these fields begin pumping out oil in the near future.

But Statoil isn’t just striking it rich in new fields.

In August, the company struck a thick natural gas and condensate deposit north of the Asgard field in the Norwegian Sea. The initial reserve estimates are in the range of 25 to 47 million barrels of recoverable oil equivalent. The kicker is that Statoil was able to apply new deepwater horizontal drilling technology — courtesy of Transocean (RIG[8]) — to an old field.

The Asgard in the Norwegian Continental Shelf was first discovered in the 1980s and represents Statoil’s “bread and butter.” That’s certainly promising, given Statoil’s significant acreage and drilling leases on the NCS.

Add this to the three Flemish Pass discoveries as well as the E&P firms new drilling programs in the Gulf of Mexico, Bakken shale, Tanzania and Mozambique, and you can see how Statoil’s reputation as one of the sector’s top energy companies is growing. In fact, STO has actually discovered more petroleum than any other energy firm so far this year — at around 550 million barrels of oil equivalent. And as we’ve noted before, finding oil is the chief concern[9] for all the majors.

It’s Dirt Cheap

However, despite topping rivals Exxon, Chevron and Royal Dutch Shell (RDS.B[10]) in finding oil, Statoil continues to be unloved.

Much of that could be attributed to the firm’s recent spout of earnings misses. Statoil recently reported earnings 84% lower than a year ago. As such, shares of STO have only climbed about 5% this year, while other majors are up in the 15 to 20% range.

But the recent spate of oil discoveries gives the firm an edge.

Both Exxon and Statoil roughly trade at price to earnings ratios of just under 11. That’s pretty cheap in any sector. However, as we’ve shown before[11], Exxon hasn’t exactly been putting a “tiger in in its tank.” Oil and natural gas production at Exxon fell about 1.9%, to a little more than 4 million barrels per day during the previous quarter. This decrease in daily production is now the eighth consecutive quarter of year-over-year production drops for the energy giant. On the flipside, STO has increased production and its reserve replacement ratio.

Basically, investors are getting a faster-growing energy firm for roughly the same price — which is even juicier when you consider Statoil’s 5% annual dividend (paid yearly) versus XOM’s 2.9% payout.

At the end of the day, when looking at some of the giant oil names out there, Norway’s Statoil could be one of the best ones. It’s making all the right production moves to keep investors happy in the long term.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

Endnotes:
  1. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  2. CVX: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVX
  3. BP: http://studio-5.financialcontent.com/investplace/quote?Symbol=BP
  4. smaller giants: http://investorplace.com/2013/08/five-electric-small-cap-energy-stocks/
  5. STO: http://studio-5.financialcontent.com/investplace/quote?Symbol=STO
  6. HUSKF: http://studio-5.financialcontent.com/investplace/quote?Symbol=HUSKF
  7. struck oil and natural gas: http://www.cbc.ca/news/canada/newfoundland-labrador/story/2013/08/27/nl-statoil-bay-du-nord-flemish-pass-oil-discovery-827.html
  8. RIG: http://studio-5.financialcontent.com/investplace/quote?Symbol=RIG
  9. the chief concern: http://investorplace.com/2013/07/chevron-wades-back-into-argentina/
  10. RDS.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=RDS.B
  11. we’ve shown before: http://investorplace.com/2013/08/higher-production-costs-sink-major-energy-stocks-exxon-shell/

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