Statoil ASA (STO) has awarded an eight year contract to Aker Solutions to attain heavy well intervention and light drilling services on the Norwegian Continental Shelf (NCS).
The contract is worth $1.9 billion for the initial eight year term and involves three two-year options for the Category B (Cat-B) service. The technologically advanced Cat-B rig has been mainly designed for industrialization of drilling and intervention services in existing production wells.
This semi-submersible unit is operated by Aker’s affiliate, Aker Oilfield Services. It will provide a range of heavy well intervention and light drilling tasks. These include through-tubing rotary drilling, wireline, coil tubing, high pressure pumping, well testing and cementing serves, as well as remotely operated vehicle (ROV) operations. The rig is capable of operating up to 500 meters under water.
For Statoil, this Cat-B tool is necessary to enhance the recovery rate from its existing fields, which is a commitment for the Norwegian company. Last year, the average oil recovery rate increased to 50% from 49% from Statoil operated fields.
We believe this contract will aid Statoil to maintain its current production level on the NCS. It is also associated with the development of new fields. The world’s largest offshore operator – Statoil – delivered strong exploration results last year. It added more than 1 billion barrels to its resource base. The company also made significant discoveries in the mature North Sea as well as in the Barents Sea, reaffirming the potential of the NCS.
While Statoil is fairly active in development operations, we remain on the sidelines on account of its weak fourth quarter 2011 production profile. The management had earlier said that it would deliver a compound annual production growth rate of around 3% between 2010 and 2012. The company, however, remained cautious about uncertainty due to gas value over volume, start-up and ramp-up, and operational regularity. Thus it remained skeptic about its growth target.
Notably, the company expects planned turnaround to have an adverse effect of around 20 million barrels of oil equivalent per day (MMBOE/d) on its first quarter production. Additionally, Statoil expects its 2013 production to remain somewhere around the 2012 level.
Hence, our long-term Neutral recommendation remains unchanged for Statoil. The company, which competes with Eni SpA (E), holds a Zacks #1 Rank (short-term Strong Buy rating).
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