Zacks_Analysts' Blog : Statoil & Allies Win Bid in Canada - Analyst Blog

A consortium of international oil companies comprising Norwegian firm Statoil ASA (STO), U.S.-based Chevron Corporation (CVX) and Spain’s Repsol YPF SA have won exploration bids for Canada’s East Coast.

The acreage sale was issued by Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) and included two land parcels in the Flemish Pass Basin, offshore Newfoundland and Labrador, Canada.

With a 50% stake in both licenses, Statoil will act as the operator. The Canadian unit of Chevron will hold a 40% interest and the remaining 10% will be controlled by Repsol E&P Canada.

For exploration activity, the threesome will likely invest about C$348 million or $341 million in an area spreading 247,016 hectare. The concessions are to the west of Statoil’s previous discovery, Mizzen that was drilled in 2009.

Statoil management reaffirmed its commitment in developing the resource rich offshore Newfoundland and Labrador. This bid also fortifies the company’s presence in the Canadian energy sector as well as diversifies its asset base and moves a step ahead in building positions in new offshore clusters.

In the current year, Statoil executed exploration activities on the Fiddlehead block in the Jeanne d'Arc Basin and conducted a seismic program on its EL 1123 license. Statoil also co-partnered Suncor Energy (SU) in the Ballicatters discovery on the Jeanne d’Arc Basin.

We appreciate Statoil’s endeavor to look for potential and fertile oil and gas plays across the globe. We believe that Statoil is well positioned to sustain its production growth for the next few years on the back of its growing upstream holdings in the emerging basins of the Caspian Sea, West Africa and the deepwaters of the U.S. Gulf of Mexico.

While Statoil is fairly active in its development initiatives and is spending heavily on these, we remain on the sidelines due to the company’s weak reserve replacement ratio and lower production target.

Hence, we maintain a Neutral recommendation on the stock for the long run, supported by a Zacks #3 Rank (short-term Hold rating).