Statoil Pays $590 Million to Expand in Marcellus Shale Area

Statoil ASA (STL), Norway’s biggest oil and gas producer, bought 70,000 acres in the Marcellus area in the U.S. to boost oil production amid falling gas prices there.

The assets, which are currently producing at about 5,000 barrels of oil equivalent a day, have a so-called risked resource base, a measure of reserves, of 300 million to 500 million barrels of oil equivalent, the Stavanger-based group said in a statement today. The acreage in Ohio and West Virginia has been bought from Grenadier Energy Partners LLC, Protege Energy II LLC and PetroEdge Resources II LLC, spokesman Baard Glad Pedersen said by phone.

“A majority of the net acres in this transaction are located in the liquid-rich part of the Marcellus,” Statoil said. “The market for these products is substantially better- paying than the current market for dry gas in the U.S.”

Statoil is expanding abroad to compensate for dwindling oil production from aging fields off Norway, and plans to boost U.S. output to more than 500,000 barrels of oil equivalent a day in 2020 from 166,000 barrels in the third quarter this year. That increase will account for about two-thirds of the company’s total production gains in the period as it seeks to exceed global output of 2.5 million barrels of oil equivalent a day.

About half of Statoil’s planned production increase in the U.S. will come from so-called unconventional resources.

‘Significant Potential’

The company, in which the Norwegian government has a 67 percent stake, entered the Marcellus area in 2008, the Eagle Ford area in Texas in 2010 and the Bakken and Three Forks areas in North Dakota and Montana last year.

Statoil will become operator of the new areas, which bring its total acreage in the Marcellus region to more than 750,000 acres. Statoil currently produces almost exclusively shale gas at Marcellus, which yielded a working interest of about 63,000 barrels of oil equivalent a day in the third quarter, according to the company.

Statoil sees “significant ramp-up potential” of output from the newly-acquired areas from 2014, said Torstein Hole, senior vice president for the company’s U.S. onshore operations. He declined to give estimates for future output, saying it will depend on the development of U.S. gas prices.

“If we see an upward trend in gas prices toward the end of 2013 and that provides the basis for profitable production in large parts of this area, we’ll have a significant increase in activity,” he said in a videoconference from Houston.

Falling Prices

For the time being, Statoil will concentrate on developing the parts of its new assets where the liquids concentration is the highest, he said. At the same time, Statoil will drill enough gas wells there, and in the rest of Marcellus, to meet its contractual obligations.

“We will need to see higher prices than today to significantly increase activity in the dry-gas areas in the Marcellus,” Hole said.

After trading at more than $4 per million British thermal units last month, the Henry Hub natural gas spot price has since fallen to about $3.3 today. The U.S. Energy Information Agency said on Dec. 11 that it expects the price to average $2.78 in 2012 amid record output, before rising to $3.68 next year. That’s still below the $4 average in 2011. Statoil in October cut its planned U.S. gas production by 25,000 barrels of oil equivalent because of the low prices.

The current output of 5,000 barrels of oil equivalent a day is “mainly dry gas,” said Irene Rummelhoff, Statoil’s director of business development for North America. While Statoil won’t say how much oil it expects to be able to produce relative to gas, the company expects a “significant addition to profitability,” Hole said.

Statoil won’t provide estimates of the liquids to gas proportion because it’s seeking to buy more acreage in the region, Rummelhoff said. “We will continue, but to a lesser degree,” she said. “We will buy additional areas all along, that’s a part of the onshore activity here in the U.S.”

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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