StatoilHydro Invests in Natural Gas's Long Term Growth Potential

Buy-recommended StatoilHydro (STO) offers unlevered appreciation potential of 40% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of $35 a share. Released today, second quarter results apparently exceeded our estimate for unlevered cash flow (Ebitda) from three months ago.

Lower natural gas price was cushioned by higher Ebitda margin. Natural gas, mostly sold to continental neighbors in Europe, drives 53% of NPV in our valuation that capitalizes cash flow at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). Much natural gas outside North America is priced under contract that essentially lags crude oil by six months. As a result, natural gas price may increase in the fourth quarter after a further decline in the third quarter.