We upgraded our recommendation on Statoil ASA (STO) to Neutral from Underperform on Feb 27, 2013. The company’s progress in various projects and its expectation of making significant 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.
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.
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 steady focus on gaining success in high impact prospects and expanding its operations worldwide. Further, Statoil is expected to start a potentially high impact exploration program in the Barents Sea, Hoop area and Mozambique by mid-2013.
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.
Other Stocks to Consider
While we prefer to remain on the sidelines for Statoil, there are other stocks in the sector that appear rewarding. Among these, Enerplus Corporation (ERF), Range Resources Corporation (RRC) and EPL Oil & Gas, Inc (EPL), which are expected to perform impressively over the next few months, carry a Zacks Rank #1 (Strong Buy).
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