Exploration and production industry behemoths have witnessed a steady fall in production lately. One exception seems to be Norwegian major Statoil (NYSE: STO), which has bucked the trend in the fourth quarter of 2011 and, in the process, ensured a substantial rise in its operating income.

A decent 2011
In the latest reported quarter, total revenue grew 27% on a year-on-year basis to $31.8 billion. Net operating income stood at $10.5 billion -- a corresponding 42% rise. In the same period, total entitlement production rose 1.5%. For the whole year, operating income grew an impressive 54% from 2010 despite a corresponding 3% drop in production, thanks to higher oil prices.

Strategic moves
Going forward, management aims to hit production levels of 2.5 million barrels of oil equivalent (Mmboe) by 2020 from the current value of 1.9 Mmboe. In line, the company added more than 1 billion barrels to its resource base with the acquisition of Bakken player Brigham Exploration and other major discoveries in the North Sea.

Now, the question is: Does Statoil have the capacity to develop these reserves and increase production? I believe it does. Total capital expenditure for 2012 is pegged at $17 billion. The company plans to complete 40 wells this year and expects compounded annual growth rate of production to be around 3% with 2010 as the base year. Certainly, the strategy to expand through the acquisition route seems promising, and looks impressive to me in the long run.

In an effort to diversify its production base from the colder regions of the North Sea, the Arctic region and Canada, Statoil has recently signed a letter of intent with Brazilian E&P major Petrobras (NYSE: PBR). While a seemingly minor event, I believe it's of considerable importance as the company strives to increase its exposure to the vast Brazilian reserves. Statoil is already bidding for some mouth-watering reserves in the Campos Basin (off the Brazilian coast) which is over and above its Peregrino investment.

Undervalued?
Historically, Statoil has been impressive in terms of returns generated. Return on equity stands at an enviable 31%, whereas debt-to-equity is at a manageable 46%. More importantly, with current price-to-book at 1.76, the company's assets seem undervalued where the average peer value stands at 1.92.

Foolish takeaway
Fools should keep an eye on this potentially undervalued stock. With a solid reserves base under its belt, Statoil has a long way to go. To stay up to speed on the top news and analysis on the company, you can start here by adding Statoil to your watchlist.