Statoil Sells 10% of Shah Deniz to BP, Socar to Curb Outlays

Statoil ASA, the biggest Norwegian energy company, sold 10 percent of Azerbaijan’s Shah Deniz gas project and South Caucasus Pipeline for $1.45 billion to BP Plc and the Azeri state oil business to curb expenses.

The Stavanger-based company will reduce its stake to 15.5 percent, selling 6.7 percent to the State Oil Co. of Azerbaijan, or Socar, and 3.3 percent to operator BP Plc, it said today in a statement. The partnership announced plans to spend $28 billion to expand Shah Deniz in the Caspian Sea and extend the pipeline.

The transaction is part of Statoil’s plans for “rigid prioritization of future investment,” Chief Executive Officer Helge Lund said in the statement.

Statoil, expanding abroad to counter falling output from aging fields off Norway, has said it will be more selective in investments as record spending and rising costs put pressure on its free cash flow and ability to pay higher dividends. The 67 percent state-owned company delayed investment in its Bressay field in the U.K. and Johan Castberg project in Norway’s Arctic Barents Sea as it seeks cheaper ways to develop the sites.

Statoil also said today it won’t invest in the planned Trans-Anatolian pipeline bringing gas from the Shah Deniz expansion through Turkey. It owns 20 percent of a second project, the Trans-Adriatic pipeline, linking Turkey to Italy.

$45 Billion

Investment in Shah Deniz 2 and the two pipelines will total $45 billion, BP said. The expansion of Shah Deniz will increase the project’s production by 16 billion cubic meters a year. The sale of the Statoil stake is effective Jan. 1.

The company’s divestment means it is less likely to maintain a goal of raising production by a quarter to 2.5 million barrels of oil equivalent a day in 2020, said Teodor Sveen Nilsen, an analyst at Swedbank First Securities.

“On our estimate, the divestment reduces the 2020 production by at least 35,000 barrels of oil equivalent a day,” he said by e-mail. “However, Shah Deniz represents low-margin production and Statoil will probably be able to employ the cash better elsewhere,” such as the Utsira High area in Norway’s North Sea, off Canada’s east coast or off Tanzania.

Statoil, which plans to update investors on its strategy in February, says it’s “not wedded” to the 2020 output target. It has sold North Sea assets to Centrica Plc, Wintershall AG and OMV AG for more than $5 billion over the past two years.

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