Statoil Hits Pay Dirt off Canadian Coast

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Norwegian oil giant Statoil (NYSE: STO  )  has high hopes for its offshore properties in Canada following a series of major oil discoveries.

In August, Statoil announced a major oil find -- its largest outside of Norway -- in the Bay du Nord region off the coast of Newfoundland. Last week, Statoil, along with Canadian co-venturer Husky Energy (TSX: HSE  ) , revealed that its first Bay du Nord exploration well found between 300 million and 600 million barrels of recoverable oil in the seas off Canada's east coast.

This most recent find in the Bay du Nord marks the Norwegian state-owned oil major's third discovery in Canada's Flemish Pass Basin, where it has licenses to drill across an area of roughly 8,500 square kilometers. The company's earlier two discoveries included Mizzen, which was discovered in 2009 and is estimated to hold between 100 million and 200 millions barrels of recoverable oil, and Harpoon, which was found in June and whose reserves are still being evaluated.

Recent finds' impact on Statoil
Statoil plans to conduct additional exploration and seismic studies in the Flemish Pass Basin over the next few years. Depending on how successful these efforts are, the region could become a "core producing area stretch" for Statoil after 2020.

These discoveries also serve to cement the company's hard-earned reputation as one of the most competent energy exploration firms in the world. According to Tim Dodson, the company's head of exploration, Statoil has discovered some 850 million barrels of oil equivalent this year alone, making it the most successful explorer of conventional oil prospects in the world.

In addition to the sheer volume of oil these discoveries are estimated to contain, Statoil also stands to benefit from its early mover advantage and deep knowledge of the Flemish Pass Basin. Furthermore, it may also be able to leverage its access to infrastructure that is already in place to support other major projects under way in the area.

One of the largest such projects is ExxonMobil's (NYSE: XOM  ) $14 billion Hebron development off the coast of Newfoundland, which was green-lit earlier this year and is expected to produce as much as 150,000 barrels of oil per day starting in 2017. To develop the project, its operators – which include Chevron with a 26.7% stake; Suncor Energy, with a 22.7% interest; Statoil, with 9.7%; and Nalcor Energy Oil And Gas, with a 4.9% stake – will use a stand-alone gravity-based structure that will be able to hold as much as 1.2 million barrels of crude oil.

The bottom line
All told, Statoil's recent Flemish Pass discoveries, as well as its major recent finds offshore Tanzania, suggest the company's strategy of allocating capital to high-impact opportunities is serving it well. They also highlight how the Norwegian oil giant is successfully expanding its area of focus beyond its traditional playing field in Norway, as it seeks to offset natural production declines from its maturing North Sea fields.

Along with its operations in the Bay du Nord, Statoil is pursuing three key projects over the next year, including its Sake prospect in the Gulf of Mexico, its Cachalote & Buzio projects in Mozambique, and its drilling program in the Barents Sea. If the company can avoid start-up delays and keep costs under control, these and other projects scheduled to start up in 2013-2016 and in 2017-2020 should help the company grow its production from 2 million barrels of oil equivalent a day to 2.5 million by 2020.

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9/27/2016 3:59 PM
HSE $15.23 Down -0.18 -1.17%
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Statoil CAPS Rating: ****
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ExxonMobil CAPS Rating: ****