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Norwegian energy company Statoil ASA (STO) announced the commencement of production from its Caesar Tonga deepwater project in the Gulf of Mexico (GoM).

Caesar Tonga field, located in the Green Canyon area of the deepwater GoM, is estimated to have a reserve potential of 200–400 million barrels of oil equivalent (MMBOE). The company, holding 23.55% working interest in the project, expects the field production to reach about approximately 45,000 BOE per day from the first three subsea wells. A fourth development well, which is part of the phase one development plan, is expected to be drilled and completed later this year.

Anadarko Petroleum Corporation (APC) holds an operational interest of 33.75% in the project, and other associate partners include Shell Offshore, a subsidiary of Royal Dutch Shell Plc (RDS.A), and Chevron U.S.A., a subsidiary of Chevron Corporation (CVX), with 22.45% and 20.25% stakes, respectively.

The Caesar Tonga development venture – that utilized Anadarko’s fully operated Constitution spar floating production facility – also applied the steel lazy wave riser technology for the first time in the GoM. The Constitution spar, located in Green Canyon Block 680 in about 5,000 feet of water, has a capacity of 70,000 barrels of oil per day and 200 million cubic feet of natural gas per day.

The Caesar Tonga development assumes significance for Statoil as it demonstrates the company’s move to significantly grow its production level in the GoM region over the next several years. Statoil, the world’s largest offshore operator, has operations in all major hydrocarbon-producing regions of the world, but is mainly focused on the Norwegian Continental Shelf (NCS).

We believe that the production start-up at Caesar Tonga will help in driving the development and expansion of Statoil’s international asset portfolio. Statoil is also increasingly shifting its focus to the still-unexplored areas of the Norwegian Sea and aims to achieve an equity production of above 2.5 MMBOE in 2020.

However, we remain cautious about the company’s weak production profile, which experienced a marginal increment in the fourth quarter of 2011. In the reported quarter, equity and entitlement production increased only by 2% and 1%, respectively, from the year-earlier period. Hence, our long-term Neutral recommendation remains unchanged and the company holds a Zacks #3 Rank (short-term Hold rating).

 
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