Norwegian oil giant Statoil ASA (STO) has yet again discovered a huge gas deposit in the Lavani well on Block 2, off Tanzania. The company plans to develop its gas find through a liquefied natural gas solution but has not revealed the cost estimate. Per the analysts, the development costs of the project would be around $10 billion.

The initial outcome of the logging proved that the Lavani well holds an estimated recoverable resource of 3 trillion cubic feet (Tcf) of gas in place. The well was drilled to a depth of 2,400 meters by Ocean Rig Poseidon and came across 95 meters of superior quality reservoir sandstone with high porosity and permeability.

Located 16 kilometers south of Statoil’s Zafarani discovery – the new find spans approximately 3,417 miles (5,500 square kilometers) and is the second exploration well in Block 2. The Zafarani discovery made in February 2012 was projected to hold 5 Tcf of gas in place at the time. The company announced that the recently drilled Zafarani sidetrack further augmented the capacity by 1 Tcf of gas in place. This brings the total gas estimate to around 9 Tcf in the Block 2.

Statoil is the operator of Block 2 on behalf of Tanzania Petroleum Development Corporation with a working interest of 65%. ExxonMobil Corporation (XOM) and Production Tanzania Ltd. are the other partners in the Block holding the remaining 35%.

In a string of discoveries made by Statoil over the last 14 months, the Lavani well represents the seventh high impact discovery. This goes to show the company’s steady focus on achieving success in high impact prospects and expanding its operations worldwide. This follows the discoveries made by Statoil in mature regions of the North Sea (Johan Sverdrup), the Barents Sea (Skrugard and Havis,) Tanzania (Zafarani) and Brazil (Peregrino South and P?o de A??car).

The development of Lavani well will present Statoil with a huge challenge due to the lack of proper infrastructure in East Africa – Tanzania and Mozambique. Currently, the company is in the course of reserving rigs as well as making plans for additional exploration activity. The company is also on the lookout for another development similar to that of Lavani to market its natural gas.

Statoil holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation.

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