Summary:
Statoil ASA is gaining momentum with the start-up of operations on several new oil
and gas fields. The company is also planning turnarounds on several oil and gas fields
in 2016 to improve recovery of resources in mature fields. Moreover, Statoil’s exit
from low-profit operations and broadening of its international asset base hold promise.
Statoil's track record of delivering strong exploration results, adds significantly to its
resource base by making several high impact discoveries. The company's strategy of
actively returning cash to shareholders through regular dividends and buybacks amid
commodity price volatility is another positive.
Reasons To Buy:
- We commend Statoil’s endeavors to improve recovery of resources in mature fields. The company has operations in all major hydrocarbon-producing regions of the world, with an emphasis on the Norwegian Continental Shelf (NCS). We believe that Statoil is well positioned to sustain its steady production growth over the next few years on the back of its large resource base at NCS.
- Statoil aims to achieve an equity production of above 2.5 million barrels of oil equivalent in 2020. Growth is expected to come from new projects from 2014 to 2017 that would translate into an annual organic production growth of 1%. The second stream of projects, which are expected from 2017 to 2016 are likely to lead to an annual organic production growth of 2–4%. The state-controlled explorer intends to invest about $16 billion in 2016, lower than the investments made in 2015. The lower investment plans reflect increased capital efficiency.
- Statoil also remains focused on improving normalized returns on capital employed (ROCE) by maintaining disciplined capital outlays and reducing operating costs. The company is in a very strong financial position with a current net debt-to-capital employed ratio of 21.8%. The company also actively returns cash to investors through regular dividend payouts and share buybacks.
- In recent times, Statoil has delivered strong exploration results, adding significantly to its resource base by making several high impact discoveries. The latest finds give the company access to new regions of Norway, Russia, Azerbaijan, Tanzania as well as Australia, thereby paving the way for long-term growth.
Risks:
- Management remains cautious regarding uncertainties in gas value over volume, start-up and ramp-up, and operational regularity. Divestitures are also likely to adversely impact output in 2016. Thus, it remains skeptical about the company’s growth target.
- The Norwegian government’s concentrated ownership in the company significantly reduces liquidity and attractiveness of the stock in comparison to other European integrated names.
- While the company is fairly active in its development operations, a higher capex remains a concern. Additionally, Statoil’s performance will likely be affected by the volatile macro environment, fluctuating oil and natural gas prices and geo-political disturbances.
