Statoil pursues life after Shtokman

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Norwegian oil firm Statoil is pursuing its many investment opportunities after handing back a 24 percent stake in Russia’s giant Shtokman gas field and writing down around NOK 2 billion (USD 338m) from the project. But talks continue, along with debate over whether Statoil will pull out for good.

Statoil CEO Helge Lund (second from left) signed the Shtokman deal in 2007. Five years later, he's signed off on it, amidst booming activity in other areas of Statoil's far-flung business. PHOTO: Statoil/Veronika Smolenskaya

Statoil took the large writedown in its second-quarter results and formally exited its shares after an agreement with the Russians expired on June 30. Statoil Chief Executive Helge Lund and Statoil’s senior vice president for Eurasia, Torgeir Kydland, also resigned from Shtokman Development’s board of directors as a consequence.

Statoil has said it is still in talks with Gazprom, though, and wants to go ahead with the project if it can find a profitable way. “Although the formal cooperation through the joint venture Shtokman Development AG has been finalized, Statoil sees Shtokman as an interesting project,” the company stated in a press release. “We are working together with Gazprom to evaluate the possibility of establishing an acceptable commercial basis for the project.”

Statoil's fortunes are still flying high, despite the setback over Shtockman. PHOTO: Statoil/Øyvind Hagen

Many have  nonetheless interpreted this latest development as the final move before Statoil formally pulls out of the project. According to business daily Dagens Naeringsliv (DN), financial markets have already priced this in.

Stormy seas
Shtokman (also known as Stockman), one of the world’s largest undeveloped natural gas fields, is located in stormy waters in the Russian part of the Barents Sea. The gigantic gas find was made in 1988. The consortium seeking to develop it was formed in 2008 and included Gazprom with 51 percent, France’s Total with 25 percent and Statoil with 24 percent.

The group was unable to agree, however, on terms and a development option. According to news bureau Reuters, Royal Dutch Shell is considering coming in as a partner for the venture.

High costs and advanced technology are required to develop Shtokman, largely because of the extreme temperatures and harsh weather in the area. Norway’s Statoil and Hydro joined forces to participate in the development of the field and were invited by Gazprom largely because of their expertise in harsh-water operations. Low gas prices, complicated development and high taxes are hampering profits, and international media have long speculated whether Statoil is on its way out.

Shtokman reserves are estimated at 3.8 trillion cubic metres of natural gas and more than 37 million tons of gas condensate.

Major oil finds and changing markets
Statoil, meanwhile, has reported many big oil finds over the last two years and analysts say the company can therefore choose less risky, more profitable projects.

“The original plan at Shtokman, to export gas to the US, is obviously no longer relevant,” analyst Theodor Sveen Nilsen at First Securities told DN. “Gas prices are completely different than when Statoil was allocated its share. After all the big finds, Statoil might not need Shtokman to reach its production target for 2020.”

Another analyst also told Reuters that many things had changed for Statoil in recent years. “In the last four or five years, it has gone from being a domestic actor with some international stakes to now having interesting assets in Brazil, Angola and the US,” said Danske Markets analyst Endre Storloekken. “They haven’t invested a great deal in the project, so I think any negative effects will be limited. They want to protect their investment capital and profits.”

Newspaper Aftenposten reported over the weekend that Statoil now wants to get even bigger in Africa. It’s already been active in exploration and production in Algeria, Libya, Nigeria and not least Anglola, and now is keen on eastern areas including Mozambique, Tanzania, Egypt and possibly Kenya.

Ambitious production targets
Statoil has plans to boost production going forward and in its second quarter report, released on July 26, it raised its full-year capital expenditure target to USD 18bn from USD 17bn and its exploration expenditure target to USD 3.5bn from USD 3bn.

The company maintained its target for total production to rise by around 3 percent a year from the 2010 level. This implies production of around 2 million mmboe. It targets an equity production of 2.5 million barrels per day in 2020.

Special for Views and News from Norway/Aasa Christine Stoltz

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