Statoil is a great stock–for 2014–but how do you value it now?

Norway’s Statoil (STL.NO in Oslo and STO in New York) reported a brutal first quarter on May 2. Net income adjusted for one-time items fell to NKr 12 billion in the quarter from NKr 16.8 billion in the first quarter of 2012. Analysts had expected adjusted net income of NKr 13.7 billion for the quarter.

Lower oil and natural gas prices in the quarter were certainly part of the problem. So too were temporary production disruptions in Algeria, Norway, and Brazil. Production in the quarter fell to 1.998 million barrels of oil equivalent a day from 2.193 million barrels in the first quarter of last year. Statoil expects that production in 2013 as a whole will fall from 2012 levels because the company has sold some assets on the Norwegian outer continental shelf and because natural gas production from acquired U.S. shale assets has come on line more slowly than expected.

Which leaves investors trying to value a projected rebound in production in 2014 and later. Statoil has high volume projects scheduled to come into production in Brazil, the Gulf of Mexico, Tanzania, Mozambique, the Barents Sea, Indonesia, and eastern Canada beginning in late 2013 and stretching into 2020. The company projects that production growth will climb from a compound annual 2% to 3% from 2012 through 2016 to an annual 3% to 4% from 2016 through 2020. (Statoil is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

The dangers are two-fold. Read more

ENI (E)

Way back on March 12, I promised http://jubakpicks.com/2013/03/12/all-time-high-for-u-s-stocks-hooray-but-why-should-we-care/ that I was going to add a stock to my dividend income portfolio soon (on March 13, I said.) Well, I didn’t make the add then and I’ve been waiting for the predictable volatility of this market to give me a better entry price. I got that price today and I’m finally making my add to that portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/

I’m going to take advantage of today’s 1.6% drop to recommend buying shares of Italian oil company Eni (E in New York.) It’s not surprising that shares of Eni are down today—the Milan exchange FTSE MIB index closed down 2.5% today in reaction to the Cyprus “solution.”

But today’s drop brings the total decline since the January 17, 2013 high to 10.9% and it pushes the dividend yield close to my 5% dividend income buying target. (The yield is 4.95% on March 25 based on the paid September 2012 dividend and the declared May 20, 2013 dividend.)

And I think you might even get some growth out of this oil stock. Read more

Anadarko find will set off Gulf of Mexico (black) gold rush

Yesterday, March 20, shares of Anadarko Petroleum (APC) rose 3.7% on news that the company had made a major discovery in the deep waters of the Gulf of Mexico. The find at the Shenandoah-2 well could produce more than 500 million barrels of crude.

As important as the discovery is for Anadarko and its partners (ConocoPhillips (COP), Marathon Oil (MRO), and Cobalt International Energy (CIE)—analysts estimated it was worth $3 a share to Anadarko investors—the find has even bigger implications for oil production in the Gulf of Mexico as a whole. It’s large enough to turn the efforts to explore the entire Lower Tertiary trend into a gold rush. The Lower Tertiary trend, with sub-regions such as Walker Ridge and the Shenandoah formation, is a very deep water play that could hold up to 15 billion barrels of oil. By deep I mean deep and expensive. The Shendoah-2 well was drilled through almost six miles of rock in water 5,800 feet deep. Wells that deep cost big bucks—a deep-water well can cost $130 million and dry holes easily run to $10 million. That makes spending money on the best available seismic imaging technology a no brainer.

Anadarko’s discovery in the Shenandoah formation isn’t an isolated event. Since 2010 Exxon Mobil (XOM) has found the 700-million barrel Hadrian field, Royal Dutch Shell (RDS) has discovered the 500-million barrel Appomattox field, and Chevron has found the 200-million barrel Moccasin field, all in the Gulf of Mexico’s Lower Tertiary trend. BP (BP) estimates that its Mad Dog field could hold up to 4 billion oil-equivalent barrels.

Can investors already pick some winners from the Lower Tertiary trend discoveries?

Let me suggest a few. Read more

COP

I added ConocoPhillips (COP) to my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ on January 11 because what was then a relatively pessimistic view of growth in global economy had hit oil prices and thus the stocks of oil companies. On January 11, ConocoPhillips shares paid a 4.51% dividend yield.

Since then sentiment on global economic growth has turned up and so have the prices of oil and oil stocks. Shares of ConocoPhillips are up 4.8% from the January 11 close to the close on January 25. That has reduced the yield to 4.32%.

I still like these shares as a dividend income play, however, even at this slightly higher price. Through a series of asset sales and the May spin off of its refining assets into a separate company, Phillips 66 (PSX), ConocoPhillips has turned itself into the biggest U.S.-based independent exploration and production company. With that comes big exposure to the U.S. onshore oil boom—ConocoPhillips has big holdings in the Permian Basin, in Eagle Ford and in the Williston Basin (which includes120 wells in the Bakken formation of North Dakota.) ConocoPhillips also has significant assets in Canada’s oil sands, the Gulf of Mexico, Africa, and Asia.

ConocoPhillips does not look like it will grow reserves or production as quickly as some of the smaller, more concentrated U.S. independents such as Pioneer Natural Resources (PXD) or Denbury Resources (DNR). Read more

Statoil keeps adding low (geopolitical) risk reserves

Statoil (STO) isn’t just Norway anymore. (Statoil is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/

In recent months the company, 67% owned by the Norwegian government, has announced a raft of new discoveries and acquisitions in waters off Tanzania, in the Espirito Santo Basin off Brazil, and in the ocean off Newfoundland and Labrador. Add in continued expansion of the company in U.S. shale regions including the Bakken formation of North Dakota, Montana, and Saskatchewan; the Eagle Ford in Texas: and the Central Marcellus in the Eastern United States, and you can see one of the sturdy legs of the company’s global strategy.

The other leg is enhanced recovery—that is getting more of the oil and gas in the ground out of the ground–from the company’s existing wells on the Norwegian Continental Shelf. The company’s recovery from these fields has gone from a planned 30% to 50% in 2011 to a goal of 60%. That goal would add 7.5 billion barrels to Statoil’s reserves on the Norwegian Continental Shelf. Testifying to Statoil’s commitment to enhanced recovery is a budget that puts 50% of the company’s research spending into enhanced recovery.

The distribution of Statoil’s exploration and acquisition spending reflects the company’s sense that global market demand for oil on purely economic grounds is likely to stay relatively weak but that the geopolitics of oil means that a significant portion of global production comes from risky regions and countries such as Iran, Iraq, Sudan, Russia, and Venezuela. In that environment the goal is to expand production—up 10% at Statoil in the first nine months of 2012—while avoiding increases in geopolitical risk.

The New York traded ADRs closed at $25.15 today, January 7. Even with today’s 1.2% decline the price is toward the upper end of the recent range of a $23.58 low on November 16 and a September 14 high of $26.99. I would look to initiate or add to positions toward the lower end of that range—anything below $24 looks attractive to me. In Jubak’s Picks I have a target price of $29 an ADR by May 2013. Statoil pays a dividend yield of 4.24%.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Statoil as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/