Until recently, the long-term outlook for Norway's energy future had been rather bleak. Its North Sea oil fields had declined rapidly from the glory days of previous decades.
But all of that recently changed with Norway's largest oil field discovery since the 1980s. And one Norwegian company, which made the find, is perfectly positioned to capitalize on this tremendous opportunity... a company that was already poised to benefit from another large discovery in the region earlier this year.
Statoil had been dogged for several years with declining oil production and poor exploration results. As a result, Statoil shifted much of its focus away from Norway and toward the rich oil and gas fields of Brazil, Africa and even the United States in order to meet its target of raising output a third to 2.5 million barrels a day. In fact, it discovered up to 300 million barrels of oil in its Peregrino South field offshore of Brazil in June.
However, the company kept drilling in Norway (which still accounts for three-quarters of its production) and now it can be thankful it did. Today, Statoil has been transformed into an exciting oil exploration company with major finds.
The biggest find since the 1980s
The mature offshore oil industry in Norway had been in decline for a decade, nearly halving. North Sea oil production peaked in 2001 at 3.42 million barrels of oil a day. By 2010, production was down to 2.13 million barrels of oil per day.
But the industry was reborn in August 2011, when Statoil made its find.
Statoil said that its 40%-owned Aldous Major South oil field in the North Sea is estimated to hold between 400 million and 800 million barrels of oil equivalent, double previous expectations. It also confirmed the field was connected to the neighboring Avaldsnes oil field, in which Statoil also owns a 40% stake. The combined area could hold 500 million to 1.2 billion barrels of recoverable oil equivalent.
This makes the combined fields one of the 10 largest discoveries in Norwegian waters since oil was first found some 42 years ago. If estimates are correct, then Statoil's discovery will be equivalent to about two-thirds of total production from Norway's continental shelf during the past decade.
What makes the find particularly exciting is the fact that it's located in the middle of Norway's most mature North Sea production area and under just 100 meters of water. Because the field is in such shallow water, drilling is much easier (and cheaper) than attempting to drill miles deep under the water.
And this was not the only major discovery Statoil made this year...
Arctic oil riches
In April, the company revealed it had found a major oil field in the Arctic region of Norway, under the Barents Sea.
One of Statoil's recent focuses was on seeking new oil reserves in untapped Arctic waters. It is estimated the Arctic region could hold up to a quarter of the world's undiscovered oil and gas. According to the U.S. Geological Survey, the Arctic may hold up to 90 billion barrels of recoverable oil. This is twice the amount produced from the North Sea since the 1960s.
At the time, Statoil described the discovery as the most significant Norwegian oil discovery in a decade. The Skrugard field is estimated to hold at least 150 million to 200 million barrels of oil equivalent, with a possibility of up to 500 million barrels.
Expectations are that there are even more rich oil fields in the area awaiting discovery. This may be just the tip of the iceberg with regard to Barents Sea oil.
According to the Norwegian Petroleum Directorate, the country's portion of the Barents Sea (shared with Russia) could hold up to 6 billion barrels of oil equivalent.
This is extremely significant because Norway's proven oil reserves, as of Jan. 1, were 5.67 billion barrels, according to the Oil and Gas Journal.
The future for Statoil
These recent discoveries have been gratifying to Statoil. The company kept faith in the continental shelf regions (North Sea, Barents Sea and Norwegian Sea) of Norway's waters at a time when other oil majors had written off the region as being in a terminal decline.
Risk to Consider: There are two possible risks investors in Statoil face, one macro and one micro. The macro risk is the global economy going into a steep recession, cutting sharply into demand for oil. This would send oil prices down, eating into Statoil's profitability. The micro risk is the company not executing its exploration and production plans. Prior to this year's successes, Statoil had not had much luck into finding new sources of hydrocarbons.
Action to Take--> The recent oil finds made in Norwegian waters have changed the entire oil production outlook for the country. Statoil clearly stands to benefit the most from the discovery of these vast oil fields.
Investors should consider buying Statoil as a long-term play on energy-rich Norway and higher oil prices during any bout of market turmoil. With a safe 5%-plus yield, investors can sit back and collect the dividend while the stock potentially doubles during the next two years.