Even though weak global demand and high stockpiles have kept crude prices down in recent months, this oil company has continued to expand globally, writes MoneyShow’s Jim Jubak, also of Jubak’s Picks, putting them in good position when demand recovers or geopolitical turmoil returns to the headlines.
Statoil (STO) isn’t just Norway anymore (Statoil is a member of my Jubak’s Picks portfolio). In recent months the company, 67% owned by the Norwegian government, has announced a raft of new discoveries and acquisitions in waters off Tanzania, in the Espirito Santo Basin off Brazil, and in the ocean off Newfoundland and Labrador. Add in continued expansion of the company in US shale regions including the Bakken formation of North Dakota, Montana, and Saskatchewan; the Eagle Ford in Texas: and the Central Marcellus in the Eastern United States, and you can see one of the sturdy legs of the company’s global strategy.
The other leg is enhanced recovery—that is getting more of the oil and gas in the ground out of the ground—from the company’s existing wells on the Norwegian Continental Shelf. The company’s recovery from these fields has gone from a planned 30% to 50% in 2011 to a goal of 60%. That goal would add 7.5 billion barrels to Statoil’s reserves on the Norwegian Continental Shelf. Testifying to Statoil’s commitment to enhanced recovery is a budget that puts 50% of the company’s research spending into enhanced recovery.
The distribution of Statoil’s exploration and acquisition spending reflects the company’s sense that global market demand for oil on purely economic grounds is likely to stay relatively weak but that the geopolitics of oil means that a significant portion of global production comes from risky regions and countries such as Iran, Iraq, Sudan, Russia, and Venezuela. In that environment the goal is to expand production—up 10% at Statoil in the first nine months of 2012—while avoiding increases in geopolitical risk.
The New York traded ADRs closed at $25.15 today, January 7. Even with today’s 1.2% decline the price is toward the upper end of the recent range of a $23.58 low on November 16 and a September 14 high of $26.99. I would look to initiate or add to positions toward the lower end of that range—anything below $24 looks attractive to me. In Jubak’s Picks, I have a target price of $29 an ADR by May 2013. Statoil pays a dividend yield of 4.24%.
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Banco Bilbao Vizcaya and Banco Santander as of the end of September. For a full list of the stocks in the fund as of the end of September, see the fund's portfolio here.