We reaffirmed our Neutral recommendation on
) on Sep 5, 2013. Statoil's strong balance sheet, exit from
low-profit generating operations and the broadening of its
international asset base are positives. However, the Norwegian
state's concentrated ownership in the company significantly
reduces the liquidity and attractiveness of the stock, relative
to other European integrated names.
We appreciate Statoil's endeavor to improve the recovery of
resources in mature fields. The company has operations in all
major hydrocarbon-producing regions of the world, with an
emphasis on the Norwegian Continental Shelf (NCS). We believe
that Statoil is well positioned to sustain its steady production
growth for the next few years on the back of its large resource
base at NCS.
During the second quarter, this Zacks Rank #3 (Hold) company made
five discoveries and advanced on its exploration program. The
latest finds gave the company access to new regions of Norway,
Russia, Azerbaijan, Tanzania as well as Australia. Several
high-impact discoveries made in the last two years have added
significantly to its resource base, strengthened the company's
position and paved the way for profitable long-term growth.
Statoil plans to drill about 50 exploration wells worldwide in
2013 and about 20 high-impact wells between 2013 and 2015. The
recent oil discoveries in offshore Newfoundland in Canada and in
the Grane area, Norway, are in sync with its strategy of
exploring new frontiers and help to create value through active
portfolio management. Consequently, these finds also boost its
Statoil aims to achieve an equity production of above 2.5 million
barrels of oil equivalent in 2020 from new projects expected to
start production within 2014 to 2016. These projects would result
in a compound annual growth rate (CAGR) of 2% to 3% for the
period 2012 to 2016. The second stream of projects is expected
within the 2016−2020 period that would likely lead to a CAGR of
3% to 4%.
However, management remains cautious about uncertainties in gas
value over volume, start-up and ramp-up, and operational
regularity. In the second quarter, both equity and entitlement
production decreased 1% year over year owing to production
decline at existing fields. Further, divestitures are likely to
adversely impact output in 2013. Thus, it remained skeptic about
its growth target.
Other Stocks to Consider
While we prefer to remain on the sidelines for Statoil, Zacks
Ranked #1 (Strong Buy) stocks -
China Petroleum & Chemical Corp.
SM Energy Company
Range Resources Corp.
) - could be good buying options for the short term.
RANGE RESOURCES (RRC): Free Stock Analysis
SM ENERGY CO (SM): Free Stock Analysis Report
CHINA PETRO&CHM (SNP): Free Stock Analysis
STATOIL ASA-ADR (STO): Free Stock Analysis
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