Zacks_Analysts' Blog : Statoil on Fast-Track - Analyst Blog

The fast-track development projects of Statoil ASA (STO) are actively underway. As part of these endeavors, Statoil hired a semisubmersible rig, Songa Delta, under a three-year contract period, for $400 million from Songa Offshore for its fast-track venture on the Norwegian continental shelf (NCS).

Statoil will use the semisubmersible rig for drilling and completing wells, in an effort to speed up the commencement of production in NCS fields. The company expects Songa Delta to come online in summer 2012. Ocean Ranger-designed Songa Delta is a column-stabilized semisubmersible rig capable of operating in water depths of up to 2,300 feet.

Further, the contract term includes a one year option following the completion of the drilling program. The company has an option to extend the contract period from three to four years.

Statoil continues to concentrate on important fast-track development projects, which draw attention toward promising finds and prospects that have available capacity. Among the fast-track development projects, PanPandora, Katla, Vigdis North-East and Gygrid form Statoil's immediate focus. All these projects, excluding Gyrid, are expected to commence production in 2012. Start-up at Gygrid is not expected before 2013.

On a separate note, it is worth mentioning that Statoil remains active on the exploration front through the standardization of equipment. Statoil signed a memorandum of understanding (MoU) with PTT Exploration and Production of Thailand. Under the MoU, the two companies will cooperate in conventional and unconventional resources, along with liquefied natural gas.

We appreciate Statoil’s endeavor to sustain its steady production momentum over the next few years given its large resource base in NCS. We believe the company’s operations in all major hydrocarbon-producing regions of the world position it well for growth.

Norway-based Statoil expects its total capital expenditure to be $16 billion in 2011 (with a major emphasis on NCS), more than the $14 billion spent in 2010. The company expects exploration activity to cost around $3 billion in 2011. This includes the completion of 40 wells and is higher than its peers.

However, Statoil expects its hydrocarbon production to be steady or lower in 2011 owing to field maintenance. Management also said that it would deliver a compound annual production growth rate of around 3% between 2010 and 2012.

Again, competition from its peer group, Eni SpA (E) is a concern. Our long-term Neutral recommendation remains unchanged and the company holds a Zacks #3 Rank (short-term Hold rating).