Statoil ASA ( STO ) is on track for an extensive exploration venture in the Skrugard area of the Barents Sea. This exploration operation will comprise four new prospects near its Skrugard and Havis discoveries and is due to start in late 2012. The campaign also includes production licenses PL532 and PL608.
The company remains upbeat on Barents Sea exploration that led to two significant oil discoveries with estimated recoverable volumes of 400 million to 600 million barrels of oil equivalent in PL532, within a year. Statoil has also observed flat spots in some of the prospects that mirror those in the already present Skrugard and Havis discoveries.
The four probes will be drilled back-to-back with the start-up of Nunatak prospect in PL532. It is scheduled to be spud in December this year, using Seadrill's ultra-deepwater semi-submersible rig West Hercules. Subsequently, the unit will join the Skavl prospect located in the same license, and later on to the Iskrystall prospect in PL608. However, the company did not disclose details for the fourth prospect.
The rig − operated by Seadrill affiliate North Atlantic Drilling − will be winterized to meet harsh weather conditions in the Barents Sea. Statoil holds 50% operational interest in both the licenses, along with partners Eni SpA ( E ) and state holding company Petoro AS holding a respective 30% and 20% stake in the permits.
Meanwhile, Statoil is ready to submit a plan for the development and operation (PDO) of its Johan Sverdrup discovery in the North Sea, west of Stavanger by the fourth quarter of 2014. The find, considered one of the largest on the Norwegian Continental Shelf (NCS) since the mid 1980s, is anticipated to have a producing life of more than 30 years, extending to 2050. Statoil will act as the operator till an investment decision is taken and the PDO is submitted.
We believe the company is fairly active in its development operations that are reflected in its capex expectation. During the first quarter of 2012, Statoil delivered strong exploration results and added three high impact discoveries to its resource base. The company made significant discoveries in offshore Norway, Tanzania and Brazil.
However, rising production costs (which leaped 10% year over year in first quarter 2012) and a higher capex remain our concerns. Additionally, Statoil's performance will likely be affected by the volatile macro environment, fluctuating oil and natural gas prices and geo-political disturbances. Hence, we remain Neutral on Statoil for the long term. The company also holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.