Zacks_Analysts' Blog : Aldous Major N Disappoints Statoil - Analyst Blog

Statoil ASA (STO) has encountered only a minor discovery at the Aldous Major North prospect in the production license (PL) 265 in the Norwegian North Sea, leaving the company disappointed.

Well 16/2-9S –– the sixth in the license –– was drilled to evaluate the potential content of the Aldous Major North prospect by the semi-submersible rig Transocean Leader that hit a thin 26 feet (8 meter) oil column in formations dating back to the Upper Jurassic period.

The well was drilled some 7 miles (12 kilometers) north of the Aldous Major South oil discovery. In PL 265, Aldous Major North and Aldous Major South are two independent findings, which when combined with the adjacent Avaldsnes discovery are expected to hold between 500 million and 1.2 billion of recoverable barrels of oil equivalent (BOE).

Statoil holds the operational interest of 40% in PL 265, while its associate partners Petoro AS, Det norske oljeselskap ASA and Lundin Norway AS hold a respective 30%, 20% and 10% stake. Given poor reservoir quality, the joint venture considered further exploration activities in Aldous Major North, which was expected to hold about 300 million BOE. Following completion of operation, the rig will revisit Aldous Major South to drill appraisal well 16/2-10.

Although this negligible discovery demonstrates Statoil’s relentless effort to reinvigorate recovery in the mature fields, we remain concerned about its production outlook. Last quarter, Statoil’s equity and entitlement production experienced a downfall due to lower gas off-take, reduced production permits, reduced water injection at Gullfaks, planned maintenance activities, lower production volume in mature fields as well as production suspension in Libya.

The company also outlined that its 2011 oil and gas production would be flat or lower than the 2010 level, owing to field maintenance. Again, the company expects maintenance to have a negative impact of around 70 thousand BOE per day (MBOE/d) on equity production in the third quarter and 50 MBOE/d in 2011, of which most are liquids.

Hence, considering Statoil’s near-term production outlook, we maintain our long-term Neutral stance on the stock. Statoil, which competes with Eni SpA (E), holds a Zacks #3 Rank, equivalent to a short-term Hold rating.