Statoil's Arctic Ambition Reinforce Region's Potential
BMI View: We believe that Statoil 's planned 2013 Arctic drilling campaign, which will push farther north than ever before, further reinforces the potential upside risks to our Norwegian oil and gas production forecasts. If successful, the campaign will serve to solidify the company's leading role in Arctic exploration and production.
Statoil is looking to further consolidate its leading position in Arctic oil and gas exploration when it embarks on a nine well drilling campaign in 2013. The recently announced exploration plans will see Statoil head farther north than ever before, as it seeks to tap more of the region's vast potential. In doing so, the Norwegian state-owned company will also triple its 2013 Arctic research budget to approximately US$43mn, up from the US$13.7mn allocated in 2012, in order to further develop the technology required to successfully operate in the harsh Arctic environment.
Statoil currently maintains its dominant position in Barents Sea exploration, with the company involved in 95% of all exploratory drilling in the region. Indeed, its most recent discoveries in the Skrugard and Havis oilfields, which are estimated to hold 400-800mn barrels of oil equivalent (boe), underscore both the potential in the Barents Sea and the integral role that Statoil is playing in the area. According to the company, those discoveries have made it possible to consider the Barents Sea a core area of the Norwegian Continental Shelf. As such, their potential has also generated significant interest among other upstream producers, many of whom are currently bidding for exploration blocks ( see our online service, June 27 2012, 'Barents Raises Production Outlook').
Additionally, through its operations at the Melkøya liquefied natural gas (LNG) export terminal, the only one of its kind in Europe, Statoil is bringing Barents Sea gas to international markets. Snøhvit, the primary source of gas for the LNG terminal, has recently seen its total recoverable reserves estimate upgraded to 210bn cubic metres (bcm). We have also previously highlighted the likelihood that Statoil will double its LNG export capacity from the Barents Sea in the coming years, further reinforcing the region's importance to international gas markets (see our online service, August 6 2012, 'Growing Demand To Spur Increased LNG Export Capacity').
The Barents is Awash With Activity
Carrying out exploration and production (E&P) in the Arctic is clearly no small feat, yet activity in the Barents Sea is expected to increase significantly over the coming years. Indeed, the characteristics of Norway's Arctic territory - one of the only Arctic areas to remain ice-free throughout the year - have contributed to Statoil's success.
Statistics Norway estimates that there could be an 18.4% increase in exploration and appraisal (E&A) spending in 2013 (see our online service, June 18 2012, 'Offshore E&A To Push Investment Higher'). The successful conclusion of the current licensing round in the summer of 2013, which includes several Barents Sea blocks, will see sustained growth in E&A activity through 2014.
Conversely, BMI has been highlighting some of the ongoing challenges that other players are encountering when operating in the harsh Arctic conditions. Royal Dutch Shell, for example, has been unable to start its Alaskan Arctic drilling campaign for the 2012 season yet, despite the fact that winter is approaching rapidly. It has faced both environmental and regulatory challenges, with stubborn sea ice and delays to regulatory approvals preventing the supermajor from realising its plans ( see our online service, July 27, 2012, 'Shell's Arctic Drilling Hits Ice').
Statoil's Success Supports Long-Term Positive Outlook For Norway
Statoil's string of recent offshore Norwegian discoveries supports a rather bullish outlook for the country's oil and gas sector. Indeed, the huge discovery at the Geitungen prospect and its implications for the high-impact Johan Sverdrup field create significant upside potential for the country's oil prospects which, despite their size, are in decline (see our online service, August 28 2012, 'New Discoveries Lift Long-Term Production Outlook'). BMI therefore believes that both the country's oil and gas production forecasts could see upward revisions over the short and medium term, with a successful push northward during Statoil's 2013 Arctic campaign further supporting this view.
|High Impact Discoveries Raise The Bar|
|Norwegian Oil & Gas Production, Net Exports|
Statoil is being rewarded for its upstream successes. Indeed, the company has consistently outperformed above the S&P 500 Oil & Gas Exploration and Production Sub-Industry Index.
|A Strong Outperformer|
|Statoil & S&P500 E&P Index, Normalised 5-Years|