Statoil: The Goose That Lays the Golden Eggs for Norway

| About: Statoil ASA (STO)
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Statoil (NYSE:STO) is an international energy company primarily focused on upstream oil and gas operations. The company is headquartered in Norway and employs over 30,000 people worldwide in 42 countries. The Norwegian state is the largest shareholder in Statoil, with a direct ownership interest of 67%.
Statoil has 40 producing oil and gas fields and is one of the world's largest net sellers of crude oil. It is also the second-largest exporter of gas to Europe. Approximately 80% of oil and gas production of the company comes from Norway. The rest of the operations are scattered throughout the rest of the world.
Business areas:
  • Exploration & Production Norway
  • International Exploration & Production
  • Natural Gas
  • Manufacturing & Marketing
  • Technology & New Energy
  • Projects & Procurement
  • Statoil Fuel & Retail
The natural gas business area is responsible for transportation, processing and marketing of natural gas worldwide, including the development of additional processing, transportation and storage capacity. Manufacturing & Marketing is responsible for processing and sale of the group's and the Norwegian state's production of crude oil and natural gas liquids.
Statoil Fuel & Retail is a stand-alone entity listed on the Oslo Stock Exchange. Statoil owns 54% of the shares in Statoil Fuel & Retail and consolidates the results of the company in its financial statements. Statoil Fuel & Retail is a leading Scandinavian road transportation fuel retailer with a strong presence also in Poland, Latvia, Lithuania and Estonia.
Key Figures
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Key figures

Peer review

Peer review table 1

Statoil has the smallest market cap out of the companies selected in the table above. Therefore, there should be room for growth. Valuation of the company (P/E, P/B) is on par with others, while dividend yield is among the best.
peer review 2
Statoil has an excellent gross margin (51%). Due to effective tax rates between 72% (2010) and 85% (2009), the profit margin appears low compared to its peers and taking into account the GM. Return on assets (ROA) is also a bit lower than with its peers. Return on equity (ROE) is at par with others. Statoil has the highest amount of long term (LT) debt per equity, but given the excellent gross margin and operating margin (26%), there should not be any problem servicing the debt. In addition, given the very high effective tax rates, there should not be any significant impact to the bottom line either, even if servicing the debt becomes more expensive in the future than it was in 2010.
Strategy Update
CEO Helge Lund stated in the 2010 annual report:

We are positioned to deliver a compound annual production growth rate of around 3% from 2010-2012. However, due to the constraints of existing production permits and the temporary issues at Gullfaks, this growth will not be linear. We expect production for 2011 to be around the 2010 level, or slightly below.

Statoil is involved in 13 fields that are being developed with a planned start-up by 2012, and is expected to add around 200 mboe per day. In addition, 150 mboe per day are expected to be added from the ramp-up of newly started fields. Statoil expects 40 additional projects to be sanctioned over the next two years at competitive break-even prices.
Statoil's CEO confirms that the strategy as a technology-driven upstream company remains firm. He also gave the following forward-looking guidance:

We expect to continue to demonstrate substantial value creation from the Norwegian continental shelf (NCS). The NCS still has a large resource base with significant yet to find volumes, and we have the experience and the competenceto exploit its full potential. The decline at mature fields is as envisaged, and we expect new projects with competitive break-even prices to deliver significant future growth. We see production outlook as being stable towards 2020 on the NCS.

We officially started production from Leismer in Canada in January 2011 and expect to start Peregrino in Brazil towards the end of first quarter of 2011, establishing Statoil as a genuinely international operator. We expect to increase our exploration activity in 2011 and will continue the pursuit of attractive exploration acreage. We will continue to mature our portfolio of international projects, laying the foundation for growth beyond 2012.

Project highlights
These are the projects and operations that I find particularly interesting:
Snøhvit (Snow White) is the first LNG production plant in Europe. It is located at 70 degrees north, making it the world’s most northerly offshore gas field. The field is at a depth of 300 meters beneath the surface. Natural gas liquids and condensate are transported 143 kilometers through the seabed pipeline to Melkøya in Hammerfest, Norway.
Carbon Capture and Storage
Statoil is a pioneer in the field of carbon capture and storage. From 1996 onwards, Statoil has been injecting and storing one million tonnes of CO2 annually from the Sleipner gas field on the Norwegian continental shelf. The company also injects CO2 in the ground on the Snøhvit field in the Barents Sea and on the In Salah field in Algeria. It also participates in a project to develop a full-scale carbon capture and storage facility at Mongstad in Norway.
Strategically, Statoil is positioned as a technology-driven upstream energy company. Currently some 80% of oil and gas production of the company comes from Norway, but in the long run this is likely to change. While the production outlook remains stable towards 2020 in Norway, according to Statoil, it's looking for growth elsewhere in the world. The annual report for 2010 states:

In further developing our international business, we intend to utilize our core expertise in areas such as deep water, heavy oil, harsh environments and gas value chains in order to exploit new opportunities and develop high quality projects.

The Norwegian state benefits immensely from Statoil. It is the largest shareholder in Statoil and also imposes high taxes on the profits (above 70%). Therefore, Statoil is the goose that lays the golden eggs for the state of Norway. Looking at the key figures and the peer review, Statoil is a good choice also for an individual investor. It offers an excellent alternative to US- and UK-based oil giants in a stable region.
Note: Investors should check the material Norwegian tax consequences (as described in a section of Annual Report 2010) that apply to shareholders resident in Norway and to non-resident shareholders in connection with the acquisition, ownership and disposal of shares and ADSs.
Disclosure: I am long CVX.