Statoil to Exit West Qurna Phase 2

Norwegian oil major Statoil ASA (STO - Analyst Report) is considering the divestment of its stake in West Qurna Phase-2 field to Russian giant Lukoil.

The massive West Qurna field in southern Iraq is divided into two phases. West Qurna Phase-1 is being developed by ExxonMobil Corporation (XOM - Analyst Report) and Royal Dutch Shell (RDS.A - Analyst Report).

The gigantic Phase-2 oilfield is estimated to hold approximately 12.9 billion barrels of oil. Statoil and Lukoil had inked a 20-year field development contract in December 2009, with an aim to raise output to 1.8 million barrels per day within a period of six years. Per the deal, Statoil has the right to divest its stake to another company after receiving consent from the oil ministry.

Statoil, Lukoil and Iraq’s North Oil Company are partners in the West Qurna Phase-2 field with stakes of 18.75%, 56.25% and 25%, respectively. Statoil is looking to dispose its stake in the field because of rising social insecurity amid escalating political tension.

Statoil has for long been contemplating abandoning operations in Iraq. The company wants to focus on less risky areas and is planning substantial investments in areas such as offshore Norway and in the United States.

Statoil has received approval from the Iraqi oil ministry with respect to selling its stake to Lukoil and the deal is in its final stages, per market sources.

Over the last few quarters, Statoil has been divesting low-profit generating assets, in particular the ones that do not fit its long-term growth plan, and collaborating on lucrative deals in an attempt to streamline its operations. Accordingly, this divestiture deal is reflective of the company’s long-term outlook.

Statoil holds a Zacks #3 Rank, which is equivalent to a Hold 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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