Statoil on the prowl

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Norway’s largest oil company Statoil is looking to make an overseas acquisition in a move that will use a significant reduction in the state’s shareholding – from 67% to 51% – to diversify the company’s resource base.

While Statoil has previously considered tie-ups with second-ranking international oil and gas companies such as BG Group, Anadarko, and EOG Resources, industry analysts believe a deal is more likely this time given the commitment of the country’s new Conservative government to reduce the state role in the economy.

Pressure is also mounting on Statoil to expand its foreign operations, as the production from its giant oil and gas fields in the North Sea continues to decline. Production from elsewhere in the world is already projected to account for 44% of the company’s overall total by 2020, against its present level of just 7%.

It makes far more sense for the government to dilute its stake by using the Statoil equity to make such a strategic acquisition for the company than to sell shares in the open market. The company has virtually no debt compared to other international oil majors – around 0.25% of its annual Ebitda – and the debt-free state’s US$800bn sovereign wealth fund hardly needs the cash.

Nonwithstanding the new minority Government’s change of approach, however, it is unthinkable that Norway would ever relinquish majority control of Statoil. That may rule out a takeover of the three previously identified targets at this stage, as all have market caps of more than US$40bn, and it would stretch the company’s financing capacity to make such an acquisition with the government stake remaining at 51%.

A smaller target is therefore considered more likely, with Tullow Oil and Cairn Energy two of the prominent names in the frame. The shares of the Africa-focused Tullow climbed 3.1% in London yesterday.

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