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Statoil (STO) Foresees Threefold Rise in Brazil Production


Norwegian integrated energy player Statoil ASA STO intends to more than triple its oil and gas production in Brazil by 2030. The company remains focused on the development of pre-salt fields in the country.

Brazil refrained from public auctions in 2016 due to adverse market conditions which were a consequence of plunging oil prices, financial weakness of state-run energy player Petrobras PBR and general political challenges. However, with the regulation changes in the latter half of 2016, Brazil revamped its pre-salt law and opened up operatorship of blocks to all foreign companies and scrapped Petrobras’ obligation to serve as the area’s sole operator.

The country has already scheduled dates for about 10 licensing rounds from 2017 to 2019 for exploratory blocks and mature onshore fields.

The modifications in Brazil’s oil industry laws are likely make the country a viable investment option and will benefit Statoil. By offering a vast array of acreage, including pre-salt fields, Brazil is reasserting itself as a destination for foreign investment.

Statoil invested about $10 billion in Brazil and is currently the largest foreign offshore operator in the country. The company operates the Peregrino field in the Campos Basin offshore Brazil with a 60% stake. Notably, this is Statoil’s biggest project in Brazil. The field’s total production capacity is around 80,000–90,000 barrels of oil equivalent per day and with a 60% stake in the field, Statoil’s share comes to around 48,000–54,000 barrels of oil equivalent daily.

Last month, the Brazilian court lifted the injunction which prevented Statoil to proceed with the Carcara field acquisition from the Brazilian oil giant Petrobras. After overcoming the legal challenges, Statoil seeks to become the sole operator of the entire Carcara discovery. Interestingly, this is one of the biggest discoveries in recent years. Carcara field – a large pre-salt oil and gas field in the Santos Basin forms a significant portion of the BM S-8 license. With the completion of the $2.5 billion acquisition deal, Statoil has become the chief operator of BM S-8 license with a 66% stake. The company is now well positioned to operate the Carcara field as well.

Statoil took over the operating control of the BM-C-33 license in the Campos basin from Repsol Sinopec Brasil S.A. – subsidiary of Spanish oil giant Repsol, S.A. REPYY. Last month, Statoil also approved the Peregrino field phase 2 developments, which is expected to add 250 million barrels of reserves.

Statoil intends to start the third platform at Peregrino field by 2020 end. It also plans to drill one exploration well on a separate prospect in the BM-S-8 license this year. The company intends to participate in Brazil's upcoming auction round in pre-salt formations on Oct 27. Meanwhile, the company is still evaluating options for developing the BM-C-33 license in the Campos Basin, where three discoveries have been made till date with an estimated production capacity of around one billion barrels of oil equivalents.

Zacks Rank & Key Pick

Statoil’s business includes upstream, midstream and downstream operations. The company’s shares have moved up 10.7% over the last one year compared with 5% gain witnessed by the Zacks categorized Oil & Gas-International Integrated industry.

However, the company’s earnings surprise history is not impressive. Statoil missed the Zacks Consensus Estimate in three of the last four quarters with an average negative surprise of 94.87%.

As a result, the company currently carries a Zacks Rank #3 (Hold).

A top-ranked player from the same industry is Braskem S.A. BAK which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Braskem reported positive average surprise of 107.79% in the trailing four quarters.

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