Statoil (NYSE:STO), the Norway based oil company, has become cheap once again due to multiple factors including concerns regarding oil reserves, declining oil prices, slowing global economy and European debt crisis. The stock's share price is off 22% compared to its 52-week high price, which was $28.95. I believe this is a great opportunity to either initiate or increase long position in this company.
In the last 12 months, the company has earned $4.10, yielding a P/E ratio of 5.53. The company's future earnings depend heavily on oil and natural gas prices, however long term investors shouldn't worry much as both oil and natural gas prices will continue to increase as demand for both continues to increase in the next couple of decades. Because of the current low oil and natural gas prices, the company is expected to earn only $2.92 per share this year, $2.97 in the next year and $3.46 in 2014. These values would give the company forward P/E ratios of 7.82, 7.69 and 6.60 respectively. Keep in mind, though, this is a very conservative estimate as oil prices are very volatile and they can always go up sharply within a short time like they did a few months ago. Also, the current earnings estimates rely on current and projected production rates. Oil companies tend to find or acquire new reserves and ramp up production in the existing reserves very frequently.
Last Wednesday, Statoil announced that it would increase its investments in North America. The company will spend $17 billion in order to ramp up its North American production from 150,000 barrels per day to 500,000 barrels per day by 2020. As the company's reserves in Norway start shrinking, the company is taking active role to increase production elsewhere. The company has strong presence in Gulf of Mexico and oil rich northern parts of US such as North Dakota. In an effort to increase its global production even further, the company entered into a number of partnerships, including one with Russian Rosneft and Italian Eni (NYSE:E). The company will continue to be aggressive about increasing its reserves and production rate all over the world. This is a great development for a company that was once local.
There are many things to like about Statoil, and one of these things is the company's safety record. While global oil companies are prone to accidents due to difficult nature of their business, Statoil has a relatively clean record. The company's clean record helps it get more bids from governments around the world and helps the company keep its cash. Currently the company has $14.63 billion in cash and short term investments in addition to $4.11 billion in long term investors. Given the company's market share of $72 billion, the company has plenty of cash it can return to investors in terms of dividends, buybacks or investing in growth oriented projects.
The company doesn't have a stable dividend history, however this isn't necessarily bad. It usually pays a decent dividend yield, and the company's actual dividend rate depends on the income it obtained in a given year. This year, the dividend rate was $1.07, yielding 4.70% at the current share price. This is less than Total's (NYSE:TOT) dividend yield of 6.96%, however much better than Exxon's (NYSE:XOM) 2.76%. Norway withholds 15% from dividend payments of American citizens, which is not that bad compared to many other European countries that withhold up to 30% from dividends.
Since 2009, the company's share price has been trading within a range from $20 to $30. Whenever it fell to low 20s, I increased my long exposure to it, and whenever it moved closer to $30, I sold some of my shares, while still holding onto some Statoil shares. This is one of those companies I could hold onto forever as I can collect dividends and write option contracts on my shares. Now is a good time to buy again.