Zacks_Analysts' Blog : Statoil in Long-Term Supply Deal - Analyst Blog

Norwegian energy giant Statoil ASA (STO) has entered into a gas supply agreement with Scottish and Southern Energy (“SSE”).

Under the terms of the deal, Statoil will provide 500 million cubic meters of natural gas annually, for 10 years, to SSE's Peterhead gas power plant in Scotland. Deliveries are slated to begin in the final quarter of 2012.

The Aberdeenshire-based power unit generally consumes 1.5 billion cubic meters of gas every year, producing enough to fulfill the electricity demand of 2 million households.

With this deal, Statoil intends to strengthen its presence in other European countries. The company is the chief supplier of natural gas to UK, with a market share of 16–18%. Natural gas is supplied from Statoil’s Norwegian Continental Shelf (NCS) via a well-connected network consisting of Vesterled, Langeled and FLAGS pipelines through Tampen Link.

Statoil is a major international integrated oil and gas firm, with operations in all major hydrocarbon-producing regions of the world. As of year-end 2010, the company had approximately 5.33 billion oil-equivalent barrels in proved reserves.

We believe that Statoil remains well positioned to sustain its steady production visibility over the next few years supported by its growing presence in the emerging basins of the Caspian Sea, West Africa and the deepwaters of Gulf of Mexico.

However, unstable oil and gas prices along with competition from BP plc (BP), Total SA (TOT) and Royal Dutch Shell plc (RDS.A) keep us cautious on the stock.

We are maintaining our long-term Neutral recommendation on the stock. Statoil currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.