Mar 252012

Statoil (STO) announced on March 13, 2012, that production has begun from the Caesar Tonga deepwater project in the Gulf of Mexico. The Caesar Tonga project currently involves three wells with the partners on the project (including Chevron (CVX), Anadarko (APC) and Shell (RDS.A)) planning a fourth well later this year. Caesar Tonga is expected to produce 45,000 barrels of oil equivalent per day from the first three wells. The field has an estimated resource base of 200 to 400 million barrels of oil equivalent.

The development of Caesar Tonga is part of Statoil’s strategy to grow their production from the Gulf of Mexico over the next several years. Many investors still consider Statoil to be primarily focused on producing oil and gas in Norway. This is not entirely inaccurate as the North Sea and Norwegian Continental Shelf are still the company’s production centers. Statoil has, however, put a great deal of effort into expanding their international production in recent years. The Gulf of Mexico is one such area into which the company has expanded.

This map shows the areas where Statoil holds active leases in the Gulf of Mexico:

Source: Statoil ASA

Statoil holds more than 400 active licenses in the Gulf of Mexico. This makes the company one of the largest license holders in the Gulf. The company was producing about 50,000 barrels of oil equivalent in the Gulf of Mexico prior to the start up of Caesar Tonga. It is quite obvious that the successful start up of this project is a net positive for the company. Caesar Tonga is estimated to produce approximately 40,000 barrels of oil equivalent from the three wells that have already been brought online. Statoil only owns a 23.55% stake in the project but this would still represent a sizable production increase from the region for the company.

I have previously written about how Statoil plans to increase their average daily production to 2,500 mboe by 2020. Most of this growth will be driven by production from projects that are located outside of Norway. The Gulf of Mexico is just one such area where these projects are located.

Jim Cramer recently stated on his “Mad Money” television show that he thinks that Statoil is a buy. I have to agree with him. Statoil does appear to offer compelling value at these levels. One of the biggest problems that was plaguing the company over the last several years was diminishing reserves. That seems to have been rectified now. Statoil enjoyed great success with its exploration and production activities in 2011. The company achieved a reserve replacement ratio of 117% in 2011 and had an organic reserve replacement ratio of over 100%.

Statoil has a significant presence in several of the biggest growth areas for the industry over the next decade. The company has operations in the Williston Basin of Montana and North Dakota, the Angolan pre-salt, Brazil, and the Canadian oil sands. The company’s presence in these areas could help contribute to the 6 to 7 percent production growth that Cramer sees Statoil achieving over the next year.

Statoil currently trades at a reasonable price. According to Yahoo Finance, the company has an EV/EBITDA ratio of 2.41, a trailing P/E of 6.40, a forward P/E of 9.71, and a five-year PEG ratio of 0.85. The Board of Directors has proposed a dividend of NOK 6.50 for this year.  This converts to approximately $1.13 at the current exchange rate.  If that dividend is approved, Statoil will yield 4.11% at the current stock price.  This dividend is subject to Norwegian withholding tax.

Disclosure: I am long STO.

Sorry, the comment form is closed at this time.