Statoil to Own Peregrino FPSO

Zacks Equity Research

Statoil ASA (STO) along with its partner Sinochem plans to gain ownership of Peregrino floating production, storage, and offloading (:FPSO) vessel from A.P Moller Maersk of Denmark. The parties did not disclose the value of the transaction, which is expected to be completed by the third quarter of 2012.

The floater − with a storage capacity of 1.6 million barrels of oil − was deployed at the Statoil-operated Peregrino field in Brazil since production start-up in 2011. It was initially transformed from a large crude carrier to a complex offshore oil production installation at a cost of more than $1 billion. Now-a-days, it is working in the Campos basin at the Peregrino field since start-up last year.

Floater contractor BW Offshore has won a contract from the group to gain operationship of the FPSO unit, which has produced more than 15 million barrels during its first year of operation, after a six-month transition period to Statoil. Although the contractor has options for an additional 15 years, the contract value was not disclosed. Approximately 200 employees working on the vessel will be retained under the new contract with BW Offshore.

Peregrino oil field is located in about 100 meters of water depth in blocks BMC-7 and BMC-47 in the Campos Basin, some 85 kilometers off Rio de Janeiro. Statoil describes it as one of the largest fields outside Norway. The first phase of the field’s development includes two drilling and wellhead platforms and a ship-shaped FPSO unit.

In April last year, Statoil commenced oil production at Peregrino and expects to gradually increase the level to 100,000 barrels of oil equivalent per day (BOE/d). With the employment of advanced horizontal well technology, the initial recovery rate has now doubled to 20%. Statoil owns a 60% interest in the field, which is estimated to have recoverable resources in the range of 300–600 million barrels of oil.

The world’s largest offshore operator − Statoil − holds an attractive exploration portfolio in Brazil with seven licenses. The company has made two high-impact discoveries at Peregrino south and Pão de Açúcar over the past year. High-impact prospects – as classified by Statoil – are those having gross resource potential in excess of 250 million BOE, or 100 million BOE net to the company.

While the company is fairly active in its development operations, its rising production costs (which crept up 10% year over year in first quarter 2012) and a higher capex remain our concerns. Additionally, Statoil’s performance will likely be affected by the volatile macro environment, fluctuating oil and natural gas prices and geo-political disturbances.

Considering these factors, we remain Neutral on Statoil for the long term. The company, which competes with Eni SpA (E), also holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

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