(STO) Statoil ASA Finds Gas Offshore Tanzania

Statoil ASA (STO) along with its partner ExxonMobil Corporation (XOM) has found indications of natural gas in the Zafarani-1 well in Block 2 offshore Tanzania.

The well, located about 80 kilometers off mainland Tanzania is considered to be of superior quality. Spud in early January, drilling activities of the well are likely to be over within three months.

The drillship Ocean Rig Poseidon is being used to drill the well, which is the first exploration in the license spanning approximately 5,500 square kilometers. The well is expected to be 5,150 meters deep while the water depth at the site is 2,582 meters.

Statoil, with a 65% working interest, is the operator of the license on Block 2 for Tanzania Petroleum Development Corporation. The remaining 35% is held by ExxonMobil.

According to the company, as drilling operations are in the initial stage, the exact size of the find as well as its commercial prospects cannot be said with any certainty. The final results of the discovery will only be made after the completion of drilling operations and evaluation of the final well outcome.

We believe that Statoil is well positioned to sustain its steady production growth for the next few years on the back of its large resource base. Further, with its latest discovery in East Africa, which is becoming a major gas hub with several findings by companies like Eni SpA (E) and Anadarko Petroleum Corporation (APC), the prospects for Statoil in the region look bright.

Mozambique, a country along the southeastern border of Africa, is considered to hold vast liquefied natural gas (LNG) resources. According to estimates, energy players plan to spend about $50 billion over the next decade for LNG development in this region.

Statoil holds a Zacks #2 Rank, which is equivalent to a Buy rating for a period of one to three months. For the long term, we maintain a Neutral recommendation on the stock.
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