Good Dividend, New Discoveries, New Deals And Technicals Make Statoil A Buy

| About: Statoil ASA (STO)

Statoil (NYSE:STO) pays a good dividend of 3.60%. This by itself might be enough to entice you to buy this stable large cap ($80.54B) oil and gas E & P company that has grown fantastically in the last year plus. Just in the last few months, its discoveries are impressive.

Statoil announced Monday August 27, 2012 that it has found another 140-270 million boe at the Geitungen prospect on Utsira High in the North Sea. This is about three kilometers north of the large Johan Sverdrup discovery. STO has a 40% interest.

STO announced July 2, 2012, that it made a significant gas and condensate discovery in the North Sea at its King Lear field (part of the Norwegian continental shelf). STO estimates the total volume in King Lear to be between 70 and 200 million boe. STO is the operator and 77.8% owner.

STO announced in mid-June a large gas discovery in Block 2 license in Tanzania of 3 Tcf. This discovery is 65% Statoil owned -- 35% by Exxon Mobil (NYSE:XOM) owned. The company expects about 60%-80% of the gas in Block 2 to be recoverable. The companies also added 1 Tcf to the nearby Zafarani discovery. This gives them about 9 Tcf in this vicinity. This meets the at least 8-10 Tcf requirement needed to make an LNG liquefaction export facility feasible.

Aside from this summer's discoveries STO recently entered into an agreement with Russian state-owned company OAO Rosneft (OTC:RNFTF) 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 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 above discoveries and the major OAO Rosneft deal, STO has made a huge number of big discoveries in the last year or two. The big knock on STO used to be that it was not growing its reserves. That is no longer true. The items below delineate many of STO's recent discoveries and acquisitions:

  1. It acquired a 35% working interest in Hess' (NYSE:HES) 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%.
  2. 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.
  3. It announced the 250 million Boe Skugard 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.
  4. It announced in June 11 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.
  5. 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 (OTCPK:LNDNY) 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 1.8B. 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. This field has recently been renamed the Johan Sverdrup field.
  6. 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.
  7. 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).
  8. It signed an a memorandum of understanding to explore a promising prospect, the Indra (and around there), in offshore Brazil with Petrobras (NYSE:PBR) and to share technology. This agreement should help both companies.

I am sure I have left some things out. Further STO did recently announce plans to drill nine exploration wells in the Arctic Barents Sea next year. It also announced that it will set aside NOK 8.5B ($1.45B) to enhance recovery in the Gullfaks South field in the Norwegian North Sea. STO is not the "going no place" company people saw it as two to three years ago. These new discoveries amount to billions of boe, and most of STO's natural gas sells to areas in which natural gas prices are much higher than in the U.S.

Statoil missed on earnings in Q2 2012, but that was mostly due to start up costs in the new Pazlor (offshore Angola) and GullFaks South Brent fields. Total oil and gas production in Q2 averaged 1.980 million boe/d versus 1.692 million boe/d in the year earlier quarter. That's roughly 17% production growth year over year, which is great for an oil major. It reaffirmed its production guidance for FY2012. It cannot predict oil and gas prices exactly any more than other companies can. However, it has clearly made huge headway in increasing its reserves and production, even if a lot of the reserves are still only estimated. This company is on a long term upswing. It is exactly the kind of company you want to buy in troubled times. It will pay you a good dividend (3.60%). It's stock could go down, but the fundamentals say that STO's stock should go up long term. It has a Price/Book (mrq) of only 1.56, and this doesn't begin to reflect the true value of its new discoveries (or the Rosneft deal). This means that you can put your money here with relative safety. It should grow over the long term. Meanwhile it will provide you with income.

The five year charts shows that the technicals also support a long term uptrend.

(Click to enlarge)

The slow stochastic sub chart shows that STO is near overbought levels. The main chart shows the stock price line is at the point of breaking through its 200-day SMA. This is a buy signal. The long term trend for STO shows that it is on a slow uptrend since the low of 2008. If you take into account all of the new STO discoveries, you realize that this is a solid uptrend. It is likely to last long term. You can clearly see the growth in STO's future production and reserves. Plus STO hasn't even started the Russian development yet. There are few stocks that make me feel as good about a buy call as this one. It currently trades at a PE of 6.08. Its FPE is higher at 9.27, but this latter is likely due the many new development expenses and/or a recession induced lowering of oil and gas prices. The company will weather this. If you want peace of mind, this stock is for you. It compares well to other majors: Chevron (NYSE:CVX) -- 3.20% dividend and PE of 8.32, Exxon Mobil -- 2.60% dividend and PE of 9.25, Total (NYSE:TOT) -- 4.80% dividend and PE of 8.19, and Petroleo Brasileiro -- 1.10% dividend and PE of 14.88. You may want to average in as the overall market is currently overbought, and STO may fall in sympathy with the overall market if the overall market falls.

Note: Some of the fundamental fiscal data is from Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.