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Update: As I Said Statoil's Near-Term Headwinds Make The Story Less Compelling
- There was nothing surprising in the company’s quarterly results.
- Replacing Helge Lund will be difficult for Statoil.
- Statoil’s high leverage to European gas prices and oil prices also present downside risk to the share price.
Statoil's New Gas Discovery Strengthens Company's Position To Be A Major Supplier To Growing Asian Markets
- Statoil recently made its seventh major discovery in the gas-rich block 2 region offshore Tanzania.
- Tanzania is ideally positioned to ship natural gas to Southeast Asia.
- Several countries in Southeast Asia are likely to greatly increase their imports of natural gas over the next two to three decades.
- Statoil has sufficient gas reserves in the country to become a major supplier to these countries.
- The company is currently constructing the needed infrastructure to take advantage of this trend.
What Does The Agreement With Naftogaz Mean For Statoil?
- Russia, Ukraine’s main gas supplier, had signed a deal to supply gas at $480 per 1,000 cubic meters of gas, via Gazprom.
- Ukraine resorts to importing gas from other European countries such as Hungary, Slovakia and Poland. It was learnt that these countries divert their gas supplies received from Russia, to Ukraine.
- Naftogaz has signed a deal with Statoil for low volume of gas supplies at $385 per 1000 cubic meters of gas.
- It is believed that this deal will have no long term ramifications mainly because it is short term and low volume.
- Statoil has corrected by 24% from its 2014 peak and the correction is a buy opportunity.
- The company's primary focus is the NCS where Statoil has some excellent long-term assets.
- Cash flow from US onshore and through divestment of non-core assets will help fund the big Johan Sverdrup development.
- Statoil should deliver strong organic FCF growth in the next two years;
- However, the company faces several headwinds in the near-term;
- Weak European gas prices, higher exploration expense and higher DD&A from recent startups are likely to weigh on results.
- Statoil’s fields Fram H North and Svalin C’s have commenced production. According to estimates Fram H-North has 10 million barrels of recoverable oil. Svalin C has 30 million barrels.
- Statoil and partners announced the commencement of oil and gas production from their Gudrun field in the North Sea as well.
- Statoil has also signed a deal with Xcite Energy Ltd and EnQuest Heather Ltd to share information regarding their field specific technical activities and operations.
- The company needed this considering that the financial results for the second quarter were weak.
Statoil, The Cheapest Oil Major, Is Looking Super Attractive
- Statoil has just sold another asset for $1.3 billion.
- Statoil has built significant positions in three major U.S. shale plays.
- Statoil’s real strength, however, lies somewhere else.
Statoil Has Capitalized On Russian Sanctions With Lithuanian LNG Deal
- Sanctions on Russia have pressed Vilnius into action as STO has entered the Lithuanian natural gas arena.
- STO would be delivering 540 million cubic meters worth of gas to the LNG terminal in Klaipėda every year.
- The current oil and gas production of STO is comparable with the 80s.
- The oil and gas giant missed earnings estimates for 2Q by over 5%.
- We are still bullish on Statoil’s long-term prospects given its technology and solid dividend.
- We didn’t anticipate the slight earnings miss, but believe the market has overreacted.
- STO is the dominant producer on the lucrative Norwegian Continental Shelf.
- STO's international production is overwhelmingly in stable nations like Angola and the United States.
- FY2013 earnings were unusually low, but new wells are coming on line in 2014 that will increase production.
- Statoil missed analyst profit expectations as management chose to curtail production in the face of lower prices.
- A goodwill impairment charge for the U.S. unconventional assets doesn't help the asset quality argument, but high-impact exploration results later this year could change the tone.
- Statoil continues to trade at a low relative multiple, but even a 3.0x multiple to 12-month EBITDA supports a $32 stock and execution should lead to a multiple re-rating.
Statoil: Excellent Q1 Trounces Estimates; Here Come The Dividends
- First quarter earnings blowout due in part to a doubling in US gas prices this winter.
- 2013 annual dividend coming; quarterly dividends begin.
- Raising my 12-month price target (again) to $33.
- Statoil is a major oil company offering good growth prospects over the next few years due to its successful exploration history.
- It has a better risk profile than other oil & gas companies, due to low exposure to refining margins in Europe and low geo-political risk exposure.
- A dividend yield above 4% and a cheap valuation compared to peers makes Statoil a compelling investment opportunity.
Statoil: Attractive Valuations Coupled With Reduced Government Stake To Provide Shareholder Value
- Reassessing their assets to increase margins due to limited commodity upside.
- Government looking to reduce stake to ~51%.
- Solid 3.2% yield with very attractive valuations.
Thu, Aug. 7, 10:09 AM
- Statoil (STO -0.4%) says it failed to make a commercial discovery in the third and final well in its Arctic drilling campaign in the Barents Sea.
- STO says it had ended its three-well drilling campaign in the Hoop area, and the Apollo, Atlantis and Mercury wells all contained non-commercial volumes of oil and gas.
- The campaign in the Hoop area follows disappointing results from a five-well program seeking to boost oil volumes for the Johan Castberg project further south in the Barents Sea, which consists of the Skrugard and Havis deposits.
Fri, Aug. 1, 12:45 PM
- Seadrill (SDRL -1.1%) CFO Rune Magnus Lundetrae says its North American Drilling (NADL +0.5%) unit can proceed with Rosneft's (OTC:RNFTF) six rig leases worth $4.25B because the contracts were signed before the latest U.S. and EU sanctions against Russia take effect.
- Advocating for the business relationship and expressing doubts about the efficacy of sanctions, the CFO says "Norway and many other countries do a lot of business with Russia, and it seems a bit unrealistic to cut all ties overnight."
- It is unclear how sanctions might affect SDRL and NADL, since they have roots in multiple countries; Norway is not part of the EU, though its government has signaled it probably will abide by the sanctions.
- Analysts say Statoil (STO +0.5%) may be forced to cancel various deals with Rosneft to explore offshore blocks in the Barents Sea and the Sea of Okhotsk and for pilot projects for heavy oil in Siberia and shale oil in the Samara region.
- Meanwhile, Weatherford (WFT -1.6%) says it closed its $500M sale of its land drilling and workover operations in Russia and Venezuela to Rosneft.
Mon, Jul. 28, 2:21 PM
- Statoil (STO -0.5%) achieves an important milestone at its Valemon project off Norway with final installation of the topsides atop the North Sea field’s platform.
- STO plans for three wells to produce when the field comes on stream at year's end; drilling on the field is planned to continue until 2017.
Fri, Jul. 25, 2:58 PM
- Tanzania has a strong chance of becoming a major producer and exporter of natural gas over the next decade, according to the IMF, noting significant offshore discoveries made in the last 2-3 years and further exploration now underway.
- Although gas resources haven’t yet been declared commercially viable, estimates of discoveries indicate recoverable offshore gas resources of at least 24T-26T cf, potentially sufficient for a four-train liquid natural gas plant, the IMF says.
- Exxon Mobil (NYSE:XOM), Statoil (NYSE:STO) and BG Group (OTCPK:BRGXF, OTCQX:BRGYY) are planning to build the country's first LNG export plant.
Fri, Jul. 25, 12:30 PM
- Statoil (STO -3.2%) says it took a writedown of NOK4.3B ($694M) on its assets in the Bakken, Marcellus and Eagle Ford plays, as a lack of pipeline capacity has hindered the company from selling its output to regions where it can fetch a higher price.
- CEO Helge Lund says it had taken longer than expected for pipelines to be built to take gas from STO's fields to higher paying markets; in the meantime, STO has to sell most of its gas from Bakken and the southern Marcellus, where gas prices are low due to excess supply.
- The writedown strengthens the perception that STO overpaid for the assets in first place.
Fri, Jul. 25, 8:18 AM
- Statoil (NYSE:STO) -2.5% premarket after Q2 earnings before interest and taxes totaled NOK32B, missing analyst expectations of NOK37.7B, and oil and gas production fell 9% Y/Y.
- STO gained NOK3.6N from farming down in the Shah Deniz field in Azerbaijan and the South Caucasus Pipeline, but the gain was offset by NOK4.3B in impairments in its U.S. onshore business.
- Q2 production fell to 1.79M boe/day on the natural decline of mature fields, asset sales, redetermination and lower gas sales as prices in Europe decreased.
- Says programs to reduce cost and improve capital efficiency are on track, with staff cuts of ~1,000 already implemented.
Fri, Jul. 25, 6:51 AM
Wed, Jul. 23, 3:15 PM
- Colombia announces disappointing results from its first oil auction in two years, drawing investment commitments totaling $1.4B which were well short of the $2.6B the government said it was expecting.
- Submitted offers did include a few big names, as Exxon Mobil (XOM +0.6%) and Statoil (STO -0.1%) landed the rights to explore a new Caribbean Sea deepwater block in partnership with Repsol (OTCQX:REPYY, OTCPK:REPYF).
- Colombia pumps ~1M bbl/day of crude oil, making oil the country's top export and main source of foreign revenue, but reserves are dwindling, and the government needs the money and know-how foreign companies can offer to explore offshore and to dig through shale.
Mon, Jul. 21, 6:49 PM
- Lebanon reportedly will delay the first auction of oil and natural gas licenses in its coastal waters until 2015 because of political gridlock over decrees needed to start the bidding process.
- Lebanon hasn't had a president since May because lawmakers have failed to agree on a candidate that would satisfy the country's two main political blocs, and the political mess is clearly impacting the energy bidding process.
- Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), Total (NYSE:TOT), Statoil (NYSE:STO), Eni (NYSE:E) and Royal Dutch Shell (RDS.A, RDS.B) are among 12 firms that have pre-qualified as potential operators.
- Lebanon claims it may have as much as 96T cu. ft. of natural gas and 850M barrels of oil off its coast.
Mon, Jul. 14, 2:21 PM
- Whiting Petroleum's (WLL +7.4%) $6B buyout of Kodiak Oil & Gas (KOG +5.1%) is renewing investor attention on independent energy firms with operations in the Bakken Shale, especially those significantly owned by hedge funds; Paulson & Co. is the single biggest owner of KOG stock, with just under 10% of shares outstanding as of the last filing date.
- While many of the largest Bakken producers are huge companies or parts of huge companies - Hess (NYSE:HES), EOG, Statoil (NYSE:STO), Marathon Oil (NYSE:MRO), XTO Energy (NYSE:XOM) - a few small and mid-cap independent players show hedge fund interest, CNBC's Brian Sullivan writes.
- The single biggest holder of Oasis Petroleum (OAS +0.5%) also is John Paulson's hedge fund, which owns 9.9M shares (~9.8% of shares outstanding), Jana Partners owns 16M-plus shares in QEP Resources (QEP +1.4%), and WPX Energy (WPX +1.1%) has substantial hedge fund ownership.
Sat, Jul. 12, 8:25 AM
- The problem facing Canada isn't the Keystone pipeline or Pres. Obama or environmentalists - it's the oil sands, and they've got to be cleaned up and the head-in-the-sand denials chased way or the country will be stuck with a "baby seal hunt" image, Diane Francis writes in the Financial Post.
- The columnist thinks she knows the right person to lead the clean-up: Jeff Immelt - "an American leader with stature in Washington, on Wall Street, in the oil patch and in Silicon Valley" - who said this week that GE will help companies clean up the oil sands.
- The only way to stop the environmental excuses, Immelt believes, is for the industry to collaborate and voluntarily establish lower emissions targets that would make the oil sands competitive with any other fuel source in the world - without such a promise to provide cleaner energy, "all bets are off."
- Some related companies: XOM, IMO, SU, RDS.A, RDS.B. ENB, TRP, CNQ, CVE, CVX, COP, BP, KMP, WPZ, TOT, STO, CEO, SNP, PTR, HUSKF, ATHOF, COSWF.
Tue, Jul. 8, 2:13 PM
- Talisman Energy (TLM -0.3%) and Statoil (STO -0.7%) end their effort to sell their Eagle Ford joint venture in Texas after offers came in lower than expected, Bloomberg reports.
- The companies were seeking as much as $4B for the 50-50 partnership, which was expected to draw interest from large exploration companies seeking to acquire oil-producing properties; instead, bids fell short reportedly because the venture produces ultralight oil, which is worth less than crude oil.
- The venture produces ~27.7K boe/day.
Thu, Jul. 3, 8:08 AM
- Statoil (STO) says it plans to increase the oil recovery rate at its Oseberg East field with a new drilling campaign starting up in the summer of 2015.
- STO expects to improve the recovery rate from ~20% to as high as 30% when it drills the first planned wells, with the potential for drilling more wells and further increasing the recovery rate towards 40%.
- Oseberg East is the smallest of the platforms in the Oseberg area in the North Sea, holding ~41.5M barrels of recoverable oil.
Wed, Jul. 2, 9:58 AM
- Rebels blocking Libyan oil production say they are reopening Es Sider and Ras Lanuf, the country’s largest and third-largest export facilities with combined capacity of 560K bbl/day, in a gesture of support for the newly elected parliament.
- Libya is now producing ~320K bbl/day, ~20% of its output before Qaddafi was overthrown in 2011; reopening the two terminals would increase Libya’s crude export capacity almost five-fold.
- August Brent futures (BNO) fell as much as 0.7% to $111.54, the lowest intraday level in almost three weeks; the restart at the two ports probably would send Brent down to $110/bbl, Commerzbank says.
- Energy companies with a significant presence in Libya include Total (TOT), Statoil (STO), ConocoPhillips (COP), Marathon Oil (MRO), Hess (HES), Occidental Petroleum (OXY) and Repsol (REPYF, REPYY).
- ETFs: USO, OIL, UCO, SCO, DTO, DBO, CRUD, USL, UWTI, DNO, DWTI, SZO, OLO, OLEM, TWTI
Tue, Jul. 1, 6:19 PM
- Statoil (STO) and Norwegian partner Statkraft say they will proceed with development of the £1.5B ($2.6B) Dudgeon wind farm off the U.K. coast.
- The 402 MW project will have 67 wind turbines each with 6 MW of capacity, generating enough power for 410K U.K. homes, according to a statement today from operator STO; the companies will first build an onshore substation and lay cables on land before beginning offshore construction in 2016.
- The U.K. has more installed offshore wind power generation capacity than the rest of the world put together, with 3,689 MW out of 6,930 globally, but since November developers have canceled more than 5,500 MW of planned capacity, citing costs, engineering difficulties and environmental concerns.
Mon, Jun. 30, 7:48 AM
- Statoil (STO) says it is delaying a development decision for the Johan Castberg project in the Barents Sea unit summer 2015, as it considers a possible joint venture to lower costs.
- An exploration campaign that uncovered crude in only two of five prospects in the area around the discovery over the past year has "not proven enough resources in Castberg to make the field viable for supporting infrastructure including a pipeline to shore and a terminal on its own,”, says STO’s development and production chief for Norway.
- Statoil and partners Eni (E) and Petoro were planning to present a decision on a concept by this summer after postponing the project last year because of rising costs, a tax increase and doubts on available resources.
STO vs. ETF Alternatives
Statoil ASA is an integrated oil and gas company. It explores, produces, transports, refines, and markets petroleum and petroleum-derived products. It has operations in Norway, rest of Europe, and North America.
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