Statoil hikes investment in bet oil price stays high

LONDON Thu Feb 7, 2013 4:24am EST

LONDON (Reuters) - Norway's Statoil (STL.OL) plans to ramp up capital spending to over $20 billion a year, betting the price of oil will remain high enough to fund a near doubling in its international production this decade.

The state-controlled group, which has expanded to dozens of new countries in recent years, said on Thursday it would lift capital spending to $19 billion in 2013 and an annual average of $21 billion in 2013-2016.

That compares with spending of $13.7 billion in 2010.

The investment is such that Statoil will need oil to remain over $100 per barrel to achieve a cash break-even, one of the highest levels required by a major oil company, according to analysts. Brent crude is currently trading around $117 a barrel.

However, bold exploration has paid off so far.

The group posted fourth-quarter adjusted operating profit of 48.3 billion Norwegian crowns ($8.8 billion), ahead of analysts' expectations and allowing the firm to boost its dividend payment to 6.75 crowns per share 6.50 crowns a year earlier.

Investors liked the numbers, pushing Statoil shares up 2.2 percent, even though the stock trades at 9 times earnings forecasts for 2013, ahead of the industry's 8-8.5.

INTERNATIONAL PRODUCTION

The high spending will lift Statoil's production from 2 million barrels of oil equivalent (boe) a day in 2012 to over 2.5 million per day by 2020, with almost all of the increase coming from fields outside Norway, its traditional base.

It will also spend heavily at home, like on the giant Johan Sverdrup field which could hold up to 3.3 billion barrels of oil, as it replaces maturing North Sea fields with new finds.

Statoil has had unprecedented success with exploration over recent years, with big finds in places like the North Sea and the Arctic Barents Sea, and the firm is hoping for more success in places like the Gulf of Mexico, Angola, Canada and Britain.

It will step up drilling, planning to explore at least 20 new prospects that it hopes contain major finds.

Statoil's latest find, a gas discovery off Tanzania, contains an extra 7 to 9 trillion cubic feet (tcf) of gas, a figure that should make the discovery commercially viable, it said on Thursday.

The company had previously said it needed only another 3 tcf to get the project going.

Statoil's natural gas business, a key growth area in 2012, is on a more stable footing after the firm renegotiated most of its natural gas contracts, moving to flexible pricing and taking market share from players like Russia's Gazprom (GAZP.MM).

Its gas production jumped 18 percent last year while its realized gas prices were up 5 percent.

"The (gas) market is extremely tight, there is no new LNG coming from the Middle East, and the Asian LNG prices are at oil parity," Arctic Securities analysts Trond Omdal said.

"We expect gas prices in Europe and Asia to remain strong; the deterrent is, of course, that they are capped by coal imports from the U.S."

For the full year, Statoil's reserve replacement ratio - the amount of proved reserves added to its reserve base relative to the amount of oil and gas produced - was 100 percent.

That was down from an unusually high 117 percent a year earlier, but considered a success as the firm has rarely managed to get out of double digits over the past decade.

($1 = 5.4892 Norwegian kroner)

(Additional reporting by Nerijus Adomaitis in Oslo; Editing by James Jukwey and Mark Potter)