Statoil Ties Up with Rosneft to Explore Oil & Gas in Norway

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Norwegian oil giant, Statoil ASA (STO) has teamed up with Russia’s Rosneft to jointly explore oil and gas on the Norwegian Continental Shelf (NCS) in the Barents Sea.

The partnership comes in the wake of sanctions imposed by the U.S. on Rosneft and Novatek, Russia’s second largest gas producer, owing to Russia’s support to rebels in Ukraine. A subsidiary of Rosneft was awarded a 20% participating interest in the four fields within the NCS during a licensing round last year.

Both the companies intend to evaluate the drilling results by the end of the present year.

The United States and European Union (EU) imposed sanctions over equipment and technology exports for new projects in deep-water, Arctic or shale oil for one year. The ban is unlikely to have significant impact but will be detrimental if extended on a long-term basis.

Norway, not a member of the EU, is supporting the sanctions, which are intended not to stop joint projects but rather seek to starve Rosneft of foreign financing and access to modern technology.

Prior to the sanctions, Russia was an emerging market for the oil service industry. Rosneft has also secured deals to jointly work with ExxonMobil Corporation (XOM), ENI SpA (E) and Statoil for the development of Russian sections of the Arctic shelf.

In 2013, Norway tapped an offshore Arctic zone bordering Russia in the eastern Barents Sea for oil and gas exploration. According to the Norwegian Petroleum Directorate, the area is estimated to hold about 1.9 billion barrels of oil equivalent, of which 15% is oil.

Statoil currently carries a Zacks Rank #3 (Hold). Investors interested in the oil and gas sector could consider a stock like Weatherford International plc (WFT), which sports a Zacks Rank #1 (Strong Buy) and is expected to perform better.

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