StatOil: Attractive Investment with a Big Dividend

May.25.09 | About: Statoil ASA (STO)

StatOil’s (NYSE:STO) annual meeting was held on May 19, 2009 and announced its dividend as NOK7.25 of which NOK2.85 was a special dividend. The dividend applies to shareholders of record on May 19, 2009 and the expected payment date is June 3, 2009. StatOil pays a dividend once per year and its dividend policy is stated as follows:

It is Statoil’s intention to return to its shareholders, through cash dividends and share repurchases, an amount in the range of 45-50 per cent of consolidated net income as determined in accordance with IFRS.

In any one year, however, the aggregate of the cash dividend and share repurchases may be higher or lower than 45-50 per cent of net income, depending on the company’s e... of expected cash flows, capital expenditure plans, financing requirements and appropriate financial flexibility.

This information is all well and good for those holding StatOil shares on the Oslo exchange, but what about those of us who hold the ADRs traded on the NYSE? Every year it’s the same old song and dance for those of us attempting to figure out STO’s ADR dividend payment in US dollars and its subsequent yield. We first go to the StatOil website and about all we find out there is that the NYSE ADR’s trade on a 1:1 ratio with the Oslo security and therefore the dividend ratio is also 1:1 and a straight currency translation is all that is required. Of course the StatOil website doesn’t announce the ADR dividend, which would make way too much sense and be too accommodating to US investors.

Then we try to find the small print dividend announcement in the WSJ, but that’s easy to miss. So, we end up resorting to internet currency conversion websites. End result: NOK7.25 converts to $1.14US. Since the ADR was trading at $21/share when the dividend was announced, this amounts to a dividend yield of 5.4%.

One has to wonder why on earth StatOil’s management of the ADR dividend amount is so amateurish. They could learn something from BP or other foreign oil companies trading ADRs on the NYSE. I sent an email to StatOil’s “shareholder relations” firm (the Bank of NY) inquiring as to the 2009 ADR dividend amount and received a form reply saying for security reasons they do not provide such information via email! For a company that yields almost double most major US oil companies, you would think StatOils management would go out of their way to publicize the amount and yield of their stock's dividend. Perhaps next year…

These dividend communication issues aside, StatOil remains a favorite of mine for a lot of reasons. One, it provides some protection from what I believe will be future US dollar depreciation. Secondly, StatOil remains the best alternative to Russia gas for the European continent. Thirdly, there has been a big shift in NOC’s view of major US oil companies after years of wrongheaded US foreign policy initiatives. Contracts that used to be routinely given to Exxon (NYSE:XOM) and Chevron (NYSE:CVX) now appear to be going to firms like StatOil, Eni (NYSE:E), and Total (NYSE:TOT). Foreign countries get less backlash from their citizens when doing business with Norwegian, French, and Italian energy firms than they do when dealing with American companies. This is a sad reality, but one which deserves consideration before laying out investment dollars. That said, XOM and CVX are still great ways to invest in oil, although their dividend yields pale in comparison to STO's.

StatOil’s deep sea experience is a strong positive going forward as is its technological prowess working in harsh environments like the Snoehvit field in the Arctic’s Barents Sea. STO is also increasing its US footprint. Recently, STO invested billions of dollars to acquire an interest in Chesapeake Energy’s (NYSE:CHK) Marcellus Shale holdings. StatOil is also increasing investments in deepwater Gulf of Mexico production. StatOil announced oil and gas output in the US would double this year from 30,000 barrels a day to 60,000 barrels a day as new platforms begin pumping crude in the GOM. Long term the company targets US production of 100,000 barrels a day by 2012. StatOil owns a 25% stake in two large deepwater Gulf projects: Tahiti, which started producing this month (operated by Chevron) and ThunderHawk (operated by Murphy Oil). StatOil is also showing interest in sharing their deepwater technology and capabilities with Mexico, which sorely needs capital and expertise to tap its remaining oil reserves.

STO is increasingly viewed as a stable and secure source of energy in a worldwide oil patch which is becoming increasingly insecure. All things considered, StatOil remains extremely attractive under $28/share (ADR). Its sweet dividend yield pays investors to wait for the oil price recovery we all know is not too far down the road. This stock could easily double and reach again reach its 2008 high of over $40 within the next 2-3 years.