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Statoil (STO) & SembMarine Sign LOI for Barents Sea FPSO

Norway-based integrated oil and gas company Statoil ASA STO recently signed a letter of intent (LOI) with a Singapore-based rig builder, Sembcorp Marine Rigs & Floaters Pte. Ltd or SembMarine, for building hull and integrated living quarters in a floating production, storage and offloading (FPSO) vessel. Per Statoil, the FPSO is expected to be in the Barents Sea's Johan Castberg field, located 240km north-west of its Hammerfest liquefied natural gas plant.

The contract with SembMarine includes engineering, procurement and construction work and is expected to be signed before Christmas. The infrastructure can also be used for future works in multiple fields in the Barents Sea. The contract is valued at $490 million. Statoil conducted international competitive bidding for the contract.

The project is expected to come online in 2022 and generate around 47,000 man-years of employment in Norway during its construction phase starting from 2018. Recoverable resources from the Johan Castberg field – includes oil discoveries in Skrugard, Havis and Drivis located in PL 532 – are estimated to be 450-650 million barrels of oil equivalent.

During the period of 2019-2024, the company plans to drill 30 wells in the field. While Statoil has 50% interest in the project, Italian giant Eni S.p.A. E and Norwegian government-owned Petoro own 30% and 20% interests, respectively.

About the Company

Statoil is one of the world's biggest sellers of crude oil. It is also a major supplier of natural gas in the European market and has substantial industrial operations. The company is one of the world's most environmentally-efficient producers and transporters of oil and gas. It is headquartered in Stavanger, Norway. Though the company has operations in all major hydrocarbon-producing regions of the world, it has an upstream focus on the Norwegian Continental Shelf (NCS).

Due to its strong offshore exposure, Statoil is a leader in subsea production. The company operates in four segments – Development and Production Norway, Development and Production International, Marketing, Midstream and Processing as well as Other.

We applaud the company’s strong cost-control efforts amid weak oil and gas pricing environment. During the third-quarter of 2017, Statoil managed to lower its exploration expenses by 33%. In this quarter, Statoil’s earnings and revenues both improved from the year-ago quarter.

Price Performance

Statoil has gained 13.4% of its value year to date compared with 4.8% growth of its industry.

Zacks Rank and Stocks to Consider

Statoil has a Zacks Rank #2 (Buy).

Some better-ranked stocks in the oil and energy sector include Braskem S.A. BAK and Denbury Resources Inc. DNR. Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Braskem’s sales for 2017 are expected to increase 12.1% year over year. The company delivered an average positive earnings surprise of 47% in the last four quarters.

Denbury Resources’ sales for the fourth quarter of 2017 are expected to increase 4.8% year over year. The partnership delivered an average positive earnings surprise of 125% in the last four quarters.

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