Statoil's Huge Opportunity

Statoil’s Johan Sverdrup discovery is a truly massive find that could supply as much as a quarter of total production from the Norwegian Continental Shelf (NCS).

Feb 26, 2014 at 11:00AM

As production growth from its traditional stomping grounds in the Norwegian Continental Shelf (NCS) has slowed after decades of development, Statoil (NYSE:STO) has turned toward international deepwater projects to fuel growth. But a massive recent discovery in the NCS suggests the region should continue to be a major driver of growth for the company for a long time.


Source: Wikimedia Commons.

Statoil's massive opportunity at Johan Sverdrup
In 2010, Statoil and one of its joint venture partners, Lundin Petroleum, announced two separate discoveries in a mature part of the Norwegian shelf. After communication between the two discoveries was confirmed, the two companies realized they were looking at a truly massive continuous oil discovery -- the Johan Sverdrup field.

With estimated resources of 1.8 billion-2.9 billion barrels of oil equivalent, Johan Sverdrup was one of the largest discoveries in the world in 2010 and 2011 and is one of the biggest discoveries in the Norwegian shelf since the mid-1980s. Appraisal of the field is currently under way, with Statoil and its partners having recently announced how they plan to develop the field over the next several years.

The field will be developed in multiple phases using a field center consisting of four installations and power from shore. Production from the field is expected to commence in late 2019 with an estimated plateau production of 550,000-650,000 barrels of oil equivalent per day (boe/d), of which 220,000-260,000 boe/d would be net to Statoil.

At its peak, Johan Sverdrup is expected to account for about 25% of total production from the Norwegian shelf and will have an estimated productive life of about 50 years. Production from the first phase, which is estimated to cost $16.4 billion-$19.6 billion, is expected to total between 315,000 and 380,000 boe/d.

How Statoil is countering NCS production decline
Clearly, Statoil and its partners have high hopes for Johan Sverdrup, whose appraisal has renewed optimism about the potential of the NCS. But the field won't begin producing for at least another five years, which means Statoil needs to find new sources of production to offset NCS production declines. One of the ways it has accomplished this is by focusing on higher-growth international opportunities.

Over the past couple of years, the company has brought online several high-impact projects, including Peregrino in Brazil, Pazflor and PSVM in Angola, and Skarv in Norway, while also accelerating development of its North American onshore resources in the Marcellus, Bakken, and Eagle Ford. As a result, its international volumes have grown at a CAGR of 13% since 2008, helping offset 15% annual decline from its NCS operations over the period.

How Statoil plans to grow production
Going forward, Statoil is targeting 3% annual production growth through 2016, while also reducing its capital spending by about $5 billion over the period. In my view, this production growth target looks quite achievable, given Statoil's robust portfolio of upcoming growth projects.

Some of the major needle-moving projects for the company will be CLOV in Angola, Jack/St. Malo and Big Foot in the Gulf of Mexico, and Goliat in the Barents Sea. CLOV, which is operated by Total (NYSE:TOT), should boost Statoil's production by nearly 40,000 barrels per day when it comes online this year, while Jack/St. Malo and Big Foot, both operated by Chevron (NYSE:CVX), should add another 60,000 barrels per day of net production.

Both projects are slated to come online this year, though Chevron recently said Big Foot's start-up may be postponed until early next year because of construction delays. Lastly, Goliat is slated to commence production in the third quarter of this year and will have a production capacity of nearly 40,000 barrels of oil per day net to Statoil. Combined, these four projects will boost Statoil's net production by about 140,000 boe/d, which should be enough to offset NCS declines and deliver 3% production growth through 2016.

The bottom line
If Statoil can avoid project delays and cost overruns at these projects, they should generate enough organic free cash flow to cover Statoil's dividend from 2016 onwards, assuming the price of Brent crude oil stays at around $100. And after 2020, once Johan Sverdrup begins pumping oil, the company has an even bigger potential runway to boost growth.

While Statoil and its integrated oil peers struggle to offset declining production from mature fields, one energy company continues to mint profits. Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Chevron, Statoil, and Total SA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers