Statoil ASA (EQNR -0.04%) has been doing a remarkable job of exploring for oil over the past few years as I have pointed out a few times in previous articles. The company proved this again on March 27 by discovering oil in the Norwegian North Sea. The oil was discovered while Statoil was drilling test wells at the giant Johan Sverdup field that it discovered back in 2010. This discovery was an encouraging sign for evaluating the contents of the field, and provided Statoil with very helpful information that will help it better develop the field.

About Johan Sverdup
Johan Sverdup is a massive oil field located in the North Sea off of the coast of Norway. It was discovered in 2010 by Statoil and one of its joint venture partners, Lundin Petroleum, in two separate parts that were originally thought to be two different oil fields. It was eventually determined that the two separate discoveries were both connected and were part of one giant oil field. This field, named Johan Sverdup, was later determined to be the third largest field ever discovered off of the Norwegian coast, with an estimated 2.9 billion barrels of oil .

Development of Johan Sverdup
Statoil is currently in the process of developing Johan Sverdup, and production is expected to start in 2019. The well that the company drilled a few days ago was simply meant to evaluate the composition and extent of this field so that Statoil can figure out the best way to develop it.

The test well that Statoil drilled proved that the development of Johan Sverdup should be a boon to the company. This is due to the quality of the oil that the company discovered at the site. The test well confirmed the presence of a 54 meter column of oil, thirteen meters of which was very high reservoir quality. One of the company's partners in the project, Danish firm Maersk, said that this well test was the "best ever."

Driver of production growth
Statoil has long maintained the ambition to grow its average daily production to 2.5 million barrels of oil equivalent from its present level of 1.94 million barrels of oil equivalent by 2020. This represents total production growth of 28.9% by the end of the decade. The development of Johan Sverdup in 2019 is just one avenue that the company will pursue in order to achieve this growth target, although admittedly most of the production growth that Statoil will derive from Johan Sverdup will come after 2020, due mostly to the very long development time that an oil field of this size requires. Statoil will instead rely on a variety of other projects that it is currently working on in order to achieve its future growth.

Investors would be advised to note that Statoil has significantly toned down its aggressive language regarding its growth ambition in the past few months. One reason for this is that management wants to ensure that any growth is profitable growth -- some previously promising growth areas, such as North American shale oil, are seeing rapidly rising costs of production, which makes the economics of operating in these areas much less attractive. The economics of shale oil are very important to Statoil due to the large amount of acreage that the company acquired in the Bakken when it acquired Brigham Exploration back in 2011.

But will cash flow grow?
Statoil does, however, remain committed to growing its production if that production growth will increase its cash flow, and that is exactly the kind of growth that investors would like to see. One reason is that higher cash flow will allow Statoil to raise its dividend, which appears to be one of the company's primary goals. Statoil states in its 2013 annual report:

It is Statoil's ambition to grow the annual cash dividend, measured in NOK per share, in line with long-term underlying earnings. Statoil announces dividends on a quarterly basis. The Board approves Q1-Q3 interim dividends based on an authorization from the annual meeting, while the annual general meeting approves the Q4 (and total annual) dividend based on a proposal from the Board. When deciding the interim dividends and recommending the total annual dividend level, the board will take into consideration expected cash flow, capital expenditure plans, financing requirements, and appropriate financial flexibility.

Therefore, Statoil appears to be committed to growing its production and cash flow in a way that allows it to return as much money as it can to its shareholders. The recent discovery at, and coming development of, Johan Sverdup should help it to do just that.