Statoil just reported Q1 2012 earnings. They were fantastic. Adjusted earnings after tax were NOK 16.8B versus NOK 11.9B in Q1 2011.
This is at a time when most big oil companies are missing on earnings. To mention a few, Exxon Mobil (XOM), Hess (HES), ConocoPhillips (COP), and Marathon Oil (MRO), all missed on earnings. Chevron's (CVX) production fell. STO's actual net income did go down year over year, but this was largely due to the one time gain from the 40% Kai Kos Dehseh oil sands divestment in Q1 2011. Statoil (STO) grew production by 11%. Production in Q1 2012 was 2,193 mboe/d compared to 1,971 mboe/d in Q1 2011.
As significantly, STO entered into an agreement with Russian state-owned company OAO Rosneft to jointly explore and develop Russian offshore deposits in the Barents Sea and the Sea of Okhotsk. STO will hold a 33.33% interest in each activity. This covers 100,000 square kilometers of area. The deal also includes two onshore Russian assets -- West Siberia's North Komsomolskoye field and the Stavropol shale oil play in southwest Russia. The arctic region alone is expected to have a reserve potential of 51 billion tons of oil. The pact also grants Rosneft the right to gain shares in STO's exploration licenses and properties in the North Sea and the Norwegian zone of the Barents Sea.
On top of the huge Rosneft deal, STO has made many huge recent acquisitions and discoveries in the last year:
- It acquired a 35% working interest in Hess' deepwater Tano/Cape Three Points license offshore Ghana. It also acquired a portion of Ghana National Petroleum Corp.'s interest for a total STO interest of 38.89%.
- It bought Brigham Exploration (BEXP) for 4.4B -- a Bakken play. This has an estimated resource base of 300-500 million recoverable boe, and estimates for amounts of recoverable oil in the Bakken have been going up.
- It announced the 250 million boe Skrugard oil discovery in the Barents Sea in April of 2011. Estimators think this field may hold up to 500 million of recoverable boe. Statoil is the operator of Skrugard with a 50% interest.
- It announced in June 2011 the discovery of the 150-300 million boe Peregrino South oil field discovery in offshore Brazil. Statoil is the operator with a 60% interest. The original recovery estimate was for 9%. However, STO later announced that it would use a water injection and rock compaction method to increase the recovery percentage to 20%. The field is now estimated to have reserves of 300-600 million barrels of recoverable oil in place.
- It confirmed a new "giant" oil field discovery in the North Sea. In this two reservoir zones called the Aldous and the Avalsnes are believed to be communicating the petroleum. Combined the discovery should come to 500 million to 1.2 billion of recoverable boe. STO has a 40% interest. The entire field operated with Lundin Petroleum (LNDNY.PK) was estimated to contain 1.7B-3.3B recoverable boe initally. Anders Holte said Lundin would probably lower the upper part of the Avaldsnes' range of estimates to 1.3B barrels from 1.8billion. Lundin said it was not lowering its bottom end of the range for the Avaldsnes section from 800 million barrels. Statoil said it was not lowering its estimates for the section of the Aldous/Avaldsnes play that it operates.
- It announced the discovery of a second Barents Sea find on Jan. 12, 2012. This one has 200-300 million recoverable boe. STO has a 50% interest.
- It announced that its Snoehvit offshore gas field in the Arctic contains 11% more in gas reserves than originally thought (20 billion cubic meters more).
- It signed an a memorandum of understanding to explore a promising prospect, the Indra (and around there), in offshore Brazil with Petrobras (PBR) and to share technology. This agreement should help both companies.
I am sure I have left out many points. However, the above actions demonstrate that the Q1 result for STO is not a flash in the pan. STO should continue to grow quickly. STO should get a lift from the above mentioned Q1 results (and its many acquisitions and discoveries). STO could fall back if the overall market continues to fall, but with its huge potential any pullbacks should be short lived. The emerging markets will continue to provide a secular growth market for energy, especially for oil. STO should benefit from this long term. Plus it will benefit from the development of its fantastic oil and gas properties. I note that STO has little natural gas exposure in the continental US. The bulk of its natural gas holdings still bring, strong and profitable prices; and these prices may even increase demonstrably as energy rises long term on increases in demand.
For the next year or so, the world economic environment is very uncertain. In that sense another big plus for STO is that it pays a 3.70% dividend. This should help any investor in this strong major oil company weather any tough times ahead. STO should provided great stock price appreciation in the longer 3 to 5 year time frame on top of the 3.70% dividend. For a lazy investor, who does not like to worry, STO may be a stock for you. The outlook is indeed rosy.
However, David Kostin, Goldman Sach's Chief Forecaster, has a 3 month target of 1275 on the S&P 500 and a end of year 2012 target of 1250 on the S&P500. It may pay to be careful. Even with an expected pop from earnings, you may wish to average in. The market may have more downside to come. Further the EU situation, the US economy, and the Chinese economy could all turn out to be more troubled that many are at this time estimating. A conservative strategy is called for in this environment, STO fits this strategy. Plus STO's main product, oil, will provide a good hedge against longer term inflation worries.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STO over the next 72 hours.