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Statoil Looks Too Cheap to Ignore

NEW YORK ( TheStreet) -- Since reaching a 2013 high of $27.01 on Feb. 1, shares of Statoil (STO - Get Report) have fallen by as much as 26%.

Investors have grown concerned about the company's near-term struggles with operating expenses and production growth. But I believe these concerns are overblown, especially given Statoil's strong history of profitability.

What's more, given this company's ability to develop energy reserves in tough locations, I believe patient investors can do well buying here on the dips.

I won't disagree that Statoil's less-than-5% gains in the trailing 12 months have been a disappointment, especially when compared to Chevron (CVX) and Exxon Mobil (XOM), which have posted gains close to 30% and 20%, respectively. But it's also clear Wall Street has exaggerated much of Statoil's near-term growth woes, especially in recent months.

From my vantage point, though, I would buy this company in anticipation that management will figure out ways to turn the company's luck around. To that end, Monday's $2.65 billion deal to divest minority interests in the Gullfaks and Gudrun fields was just the beginning. The company also agreed to exit the non-core, non-operated Schiehallion and Rosebank fields, which are located west of Shetlands.

This deal with Austrian oil and gas company OMV makes sense on many levels. The agreement essentially reduces Statoil's ownership stake in Gullfaks from to 51% from 70 %, while shedding its Gudrun position by 21% to 51%. The good news is that in the process management still retains Statoil's "operatorships" in both fields by virtue of its 51% ownership.

What's more, this deal will help Statoil redeploy roughly $7 billion of its expenses, of which $5.5 billion will be available over the next seven years. It certainly looks as if Statoil's troubles with liquidity and production costs, which weren't really that troubling to begin with, have now been resolved. It seems investors sometimes forget that this company already had a conservative fixed operating expense structure.

Now, with this new deal firmly in hand, it's safe to assume things will get meaningfully better. It's tough not to like the company's prospects on that basis. This is not a situation where I am downplaying other concerns that the company has had. Unplanned outages still cause some anxiety. But this has become a story about value.

I don't believe that Statoil, which is trading on par with Exxon Mobil and ConocoPhillips (COP) presents the extraordinary level of risk that's presumed by its recent declines.
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