Global integrated energy giant Statoil ASA (STO) signed an agreement with UK-based energy firm Centrica to sell its stakes in eight assets on the Norwegian Continental Shelf for approximately $1.6 billion.
Statoil intends to partially cut down its interest in the gas production or development hubs – Kvitebjorn, Valemon and Heimdal. The company will fully exit from the Skrine-Byggve, Fulla, Frigg-Gamma-Delta, Vale and Rind fields.
The deal also calls for an extended gas sales agreement between the two companies, whereby Statoil will supply about 5 billion cubic meters of gas per year to the UK market from 2015 to 2025. This represents about 5% of the total annual gas consumed in the UK that averages about 98 billion cubic meters.
A key player in the Norwegian Continental Shelf – Centrica – believes that the acquired assets will strengthen its position in the region as well as enhance its global exploration and production portfolio.
For Statoil, the transaction validates its strategy of divesting low profit generating assets and collaborating on lucrative deals in an attempt to redesign its operations. Management has not been shy of divesting assets, particularly those that do not fit into the company’s long-term growth plan. Earlier this year, the company announced plans to divest the majority of its stake in the Gassled joint venture for 17.35 billion kroner, or about $3.25 billion. We believe that these divestments will render Statoil the financial flexibility to concentrate on the high yielding projects or share buybacks.
We believe that streamlining the properties of the Norwegian Continental Shelf will provide Statoil with a balanced asset base that would support its long-term production goals. Following this disposition, the company plans to focus on the still-unexplored areas of the Norwegian Sea and targets to recover 4.2 billion barrels of oil equivalent, going forward.
On the other hand, Statoil, recently, won exploration bids for Canada’s East Coast along with U.S.-based Chevron Corporation (CVX) and Spain’s Repsol YPF SA. This bid fortifies the company’s presence in the Canadian energy sector as well as diversifies its asset base and moves a step ahead in building positions in new offshore clusters.
However, we foresee Statoil performing in line with the broader industry in the coming months and maintain our long-term Neutral rating. Statoil currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
