Statoil Digs Deep for Big Find

04/06/2011 3:21 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

I guess this is as close to giddy as management at a Norwegian company gets.

On Monday, April 4, Statoil (STO) announced that it had proven a gas and oil well on the Norwegian continental shelf in the Barents Sea.

“This opens a new oil province that can provide additional resource growth,” said Tim Dodson, executive vice president for exploration. “The Barents Sea is large, and we can not say that we have cracked the code for the entire area yet. But we have confirmed that our exploration model is correct.”

If I may interpret:

First, Statoil has identified a field with a potential total of 500 million recoverable barrels of oil equivalent.

Second, the significance of this find goes beyond this single well or reservoir. It indicates that Statoil has a pretty good idea of where the oil is in this section of the Arctic continental shelf and how to find it. That’s important because a string of dry holes before this find had significantly reduced enthusiasm for exploring this offshore region.

Third, the find is probably big enough to keep production on the Norwegian continental shelf from falling—a goal the company has called “ambitious”—and is likely big enough to make it profitable to build a second hub operation to supply natural gas to the company’s onshore liquefied natural gas facility.

And, fourth, that this field and future drilling in the area will keep Statoil at the cutting edge of exploration and production in the Arctic, one of the most promising of the world’s relatively few unexplored oil geologies.

Only a few companies have the technology or experience to operate in this extremely hostile climate, more than 120 miles offshore. (Although whether any oil company can operate safely in this environmentally sensitive region remains an open question.) This find will keep Statoil near the top of that group.

Statoil has been the operator for 60 of the 80 wells drilled in the southern Barents Sea to date. Projections put the oil and gas reserves of just the Norwegian section of the Barents Sea at 6 billion barrels of oil equivalent. (A treaty signed between Norway and Russia last year would open to exploration an additional area of continental shelf—half the size of Germany—on the border between these two countries.)

I’d look to be a buyer of Statoil on the next correction in the oil sector. As of April 6, I’m adding Statoil to my watch list. (I’m also doing some long-overdue cleanup of that list today.)

Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX ), may or may not now own positions in any stock mentioned in this column. The fund did own shares of Statoil as of the end of January. For a full list of the stocks in the fund as of the end of January, see the fund’s portfolio here.

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