We reaffirmed our Neutral recommendation on Statoil ASA (STO) on Jun 3, 2013. The company’s progress in various projects and intended additions to its resource base in the coming years are evident from the estimated compound annual growth rate (CAGR) of 3% to 4% during 2016–2020.
Statoil, a major international integrated oil and gas company has operations in all major hydrocarbon-producing regions of the world, with an emphasis on the Norwegian Continental Shelf (NCS). Statoil aims to achieve an equity production of above 2.5 million barrels of oil equivalent in 2020. The growth is expected to come from new projects between 2014 and 2016, resulting in a CAGR of 2% to 3% for the period 2013 to 2016.
In 2013, Statoil targets to bring five fast-track projects online in 2013, with Hyme, Visund South and Vigdis North East fields already commissioned. This goes to show the company’s focus on high impact prospects and expanding its operations worldwide.
The company has projected organic capital expenditures of around $19 billion and exploration activity of about $3.5 billion for 2013. Statoil plans to complete around 50 wells during the year.
Earlier in 2012, Statoil delivered strong exploration results, adding significantly to its resource base by making several high impact discoveries since the last 2 years. The company commissioned 46 exploration wells, of which 19 were on the NCS and 27 were overseas. Discoveries of around 23 wells were announced during the year.
Further, Statoil’s strategic progress in the agreement with Russian state-owned oil company OAO Rosneft, entitles it to jointly explore and develop Russian offshore deposits in the Barents Sea and Sea of Okhotsk. The venture is expected to involve an investment of approximately $100 billion over decades and the company is likely to benefit from its cooperation alliance with Rosneft – the world's largest hydrocarbon-producing company.
However, management remains cautious about uncertainties in gas value over volume, start-up and ramp-up, and operational regularity.
This was reflected in the company’s first quarter underperformance. Earnings came in below both the Zacks Consensus Estimate and year-ago result due to decreased volumes and lower prices for both liquids and gas.
The Zacks Consensus Estimate for 2013 also went down by 3.9% to $2.74 in the last 30 days. Also, for 2014, the Zacks Consensus Estimate went down 2.7% to $2.89 per share over the same time frame. The company currently has a Zacks Rank #5 (Strong Sell).
Other Stocks to Consider
While we prefer to remain on the sidelines for Statoil, there are other stocks among the international integrated players in the oil & gas sector that appear rewarding. Among these, Braskem S.A. (BAK), PetroChina Co. Ltd. (PTR) and Sasol Ltd. (SSL), which are expected to perform impressively over the next few months, carry a Zacks Rank #2 (Buy).
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