Over the past few decades, Statoil (NYSE:EQNR) enjoyed tremendous success drilling for oil and gas in the Norwegian Continental Shelf, or NCS. But as growth in the NCS has slowed in recent years, the company has aggressively expanded its portfolio to other deepwater regions.

Some of the biggest upside for the company may currently exist in the Gulf of Mexico, where Statoil is focused on a potentially game-changing prospect called Martin that could hold a truly massive amount of oil.

Photo credit: Wikimedia Commons.

Statoil's Martin prospect
Martin is located in approximately 2,900 feet of water in the Gulf's Mississippi Canyon Block 718, roughly 40 miles off the Louisiana coast. Statoil won the rights to drill in the Martin prospect when it pledged a record-setting $157 million for the 5,760-acre tract of land Martin is located on during a government auction back in June 2012.

The price it paid was more than five times the bid of its closest competitor. Along with its partner LLOG Exploration, Statoil launched drilling at Martin in late April this year, less than two years after it won the lease. Most offshore drilling projects take considerably longer -- around four to five years -- since operators require the additional time for analysis and planning.

Clearly, Statoil has high hopes for Martin. "We consider Martin one of the top prospects in our global portfolio," said Jez Averty, senior vice president of exploration for Statoil in North America. "Since acquiring this prospect in 2012, we've advanced it in 20 months, which is considerably faster than the normal maturation time."

Why it could be a game changer
So why is Statoil so optimistic about Martin? Something tells me the company obviously knows a lot more about the prospect than the rest of us, likely through the use of seismic imaging technology, which bounces sound waves off deep-sea rock structures to reveal potential hydrocarbon-bearing formations. After all, why else would it spend $1.1 million per day to drill a wildcat prospect that has been advanced in half the amount of time as the industry standard?

Though Martin is located in relatively shallow water, Statoil's well will penetrate nearly 6 miles below the sea surface to target a sub-salt Miocene rock formation. By contrast, most Miocene wells in the Mississippi Canyon don't drill past the subterranean salt canopy. If Statoil hits paydirt in this sub-salt formation, it could potentially open up an entirely new play that could be a game changer not only for Statoil, but potentially also for operators in nearby blocks such as BP (NYSE:BP) and Royal Dutch Shell (NYSE:RDS.A).

BP's Thunder Horse field, which it operates with a 75% interest alongside ExxonMobil (NYSE:XOM), which holds the remaining 25% stake, is located in Mississippi Canyon blocks 778/822, not far from Martin. The field achieved first oil in 2008 and has a production capacity of 250,000 barrels of oil equivalent per day, or boe/d. Shell's Mars field is also located in neighboring Mississippi Canyon blocks. Production from Mars using the new Olympus tension leg platform started earlier this year and is expected to peak at 100,000 boe/d.

Statoil's growth drivers
While Statoil is a relative latecomer to the Gulf of Mexico (its first operated well in the region began producing in 2007), the company has rapidly expanded its position in the region through an active exploration program, as well as through participation in major non-operated projects, including Chevron-operated Jack/St. Malo and Big Foot, Exxon-operated Julia, Shell-operated Vito and Hess-operated Stampede.

Statoil expects these and other projects, mainly in the NCS, Angola, onshore US, and the Barents Sea, to help drive 3% annual production growth through 2016. In addition to stronger production growth, the company is also focusing heavily on improving capital efficiency, with plans to reduce spending by $5 billion over the next three years. It's also pursuing more shareholder-friendly policies, with plans to begin paying a quarterly, instead of annual, dividend this year and to use share buybacks more actively.

Investor takeaway
Statoil's leading positions in high-growth onshore U.S. plays and deepwater projects in the Gulf of Mexico should help deliver stronger production growth through 2016, while its active exploration program provides significant long-term upside. With shares currently trading at just under 12 times forward earnings and 1.7 times book value, a meaningful discount to most of its peers, Statoil could have reasonable upside if it can successfully execute its new shareholder-friendly strategy.