Statoil (STO) Hires West Hercules Rig For Drilling Operations

 | Feb 06, 2018 06:24AM ET

Statoil (OL:STL) ASA (NYSE:STO) and its license partners have inked an agreement with North Atlantic Norway Ltd for the utilization of the 6th generation rig, West Hercules.

West Hercules has been hired for drilling two exploration wells in the Barents Sea in 2018 and has options to drill another five exploration wells. The contract, which involves two permanent wells, is estimated in the range of $15-20 million.

The contract value includes mobilization and demobilization expenses. However, remotely operated vehicles and other services will be charged separately. The drilling is expected to commence in summer 2018.

Statoil has previously used this rig in the northern part of the Norwegian Continental Shelf (NCS) and in Canada. The rig is equipped for use in cold waters.

Statoil’s endeavors to improve recovery of resources in mature fields are commendable. The company has operations in all major hydrocarbon-producing regions of the world, with an emphasis on the NCS. We believe that the company is well positioned to sustain its stable production growth over the next few years on the back of a large resource base at NCS.

The company’s cost-control efforts amid weak oil and gas pricing environment are laudable. Statoil has increased its drilling plan for 2017 by about 30% compared with 2016. Statoil intends to drill about 30 exploration wells in 2017, of which more than 50% will be drilled on the NCS. This raises optimism and is likely to boost shareholder value as well.

Price Performance

In the last three months, Statoil’s shares have outperformed the industry . The company’s shares have gained 5.4% compared with the industry’s 2.6% rally.