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Statoil (NYSE: STO ) is making its presence felt in the global oil and energy sector. After the $4.4 billion acquisition of Brigham (NYSE: BEXP ) to solidify its hold on the unconventional areas in the U.S., the company has struck upon one of the largest reserves in the North Sea area. The discovery promises to add fresh life to Statoil's upstream activities, especially in the Norwegian continental shelf.
North Sea production has been on a decline, and so has Norway's. The discovery is expected to stem the downturn. The discovery in the Aldous Major South is estimated to be between 900 million and 1.5 billion barrels of oil equivalent. The oil reserve is linked to the Avaldsnes discovery by Statoil's partner Lundin Petroleum, taking the combined figures to 1.7 billion to 3.3 billion barrels.
Statoil's executive vice president of exploration, Tim Dudson, said, "Even the initial production rates are going to be very, very good because each well you put in there, especially in the best parts of the reservoir, are going to produce like crazy." The discovery of the thick reservoir in shallow waters guarantees continuous high-quality flow with an approximate recovery rate of 70%-75%, which is pretty high even by industry standards. The reservoir is also expected to keep producing for the next 30 years.
The company is enthusiastic about the find's quantity and quality, with Dudson comparing the production to a fine Champagne. Plus, the cost of production will be low because of shallow waters and high quantity of quality reserves. The company is hoping to produce at a breakeven cost of $10 per barrel compared with $50 per barrel for most of the latest Norwegian fields. Thus, the discovery not only expedites production, it also provides the firm a healthy margin on sales.
Missed opportunity for peers
The North Sea area had lost promise for many companies since they thought it was a field past its prime. ConocoPhillips (NYSE: COP ) , BP (NYSE: BP ) , and ExxonMobil (NYSE: XOM ) shifted focus to the Gulf of Mexico, Brazil, and Angola for better finds. Little did they know that such a rich reserve was still lying hidden. The find has added a new lease on life to the field. Statoil plans to drill another well in the Aldous Major North by 2013 and discover additional resources.
Statoil has not only strengthened production capacity but also pumped new life into its field existence. The extraction of high-quality oil coupled with lower costs of production will boost both profit and revenue and make it a formidable force. The stock is worth watching out for.