Norway Oil Spending Seen Plunging on Costs, Political Meddling

Oil and gas companies operating in Norway, western Europe’s biggest producer, predict investments will plunge 21 percent next year amid rising costs and increased political interference over offshore developments.

Spending is forecast to drop to 182.4 billion kroner ($30.4 billion) from a record 231.7 billion kroner in 2014, Statistics Norway said today, citing a quarterly survey of producers. That would be the first drop since 2010.

“The need to cut costs and increased uncertainty about framework conditions is contributing to a weaker development of investments in 2015,” Bjoern Harald Martinsen, manager for economics at the Norwegian Oil and Gas Association, said in a statement today. The group represents companies including Statoil ASA (STL), Exxon Mobil Corp. (XOM), and ConocoPhillips. (COP)

Norway’s government last year unexpectedly increased taxes on the industry while last month parliament intervened to change the terms of the Johan Sverdrup development, the country’s largest offshore development in decades.

“Investments will reach a peak in 2014 and fall again in 2015,” Statistics Norway said in a statement. “The decrease is mainly due to significantly lower estimates of field development and fields on stream.”

Oil companies in Norway have more than tripled investments during the past decade as costs and activity climbed, driven by new finds. Companies including Statoil, which operates more than 70 percent of the nation’s oil and gas output, have cut spending plans for the coming years to boost returns amid rising costs and stagnating energy prices.

Rate Delay

The “dramatic decline” in oil spending will result in Norges Bank postponing an interest rate increase “at least until the autumn” of next year, Marius Gonsholt Hov, an analyst at Svenska Handelsbanken AB (SHBA), said in a note. Norges Bank had earlier signaled it may raise rates during the summer of 2015.

The oil and gas industry accounts for more than a fifth of the Norway’s gross domestic product, and its petroleum revenue has helped it build a $880 billion sovereign wealth fund, the world’s biggest.

Spending on field developments is expected to fall by 33 percent to 56.3 billion kroner, Statistics Norway said. That decline could be moderated when spending estimates are included for the development of Johan Sverdrup, the agency said.

The plan for Sverdrup, due to start production at the end of 2019, is expected early next year, acting operator Statoil has said. Investments could reach 120 billion kroner for the project’s first phase alone.

Cancellation Concerns

Spending on already producing fields are forecast to drop by almost 20 percent to 75.4 billion kroner in 2015, according to Statistics Norway. Oil companies also cut their estimates for this year’s investments on producing fields by 5 percent from a previous forecast in March.

Norway’s government, including state-owned oil firm Petoro AS, has voiced concern about delays and cancellations of time-critical projects designed to increase recovery at producing fields. Statoil plans to deepen investment and cost cuts beyond 2016 targets announced earlier this year, according to internal documents seen by Bloomberg News last week.

While Statistics Norway’s estimate for total investments in 2014 was increased 3.6 percent from its previous forecast, that rise is largely due to the addition of shutdown-and-removal spending in the forecast. The latest survey is the first time companies have been asked to give forecasts for next year. The estimate for 2015 is 12 percent lower than the first forecast companies made for 2014.

The Norwegian Petroleum Directorate said in January it expects investments by oil companies to reach a record 214 billion kroner in 2015, before falling to 204 billion kroner a year in the period from 2016 through 2018. Rising costs and uncertainty about oil prices are a “significant challenge” to the development of Norway’s oil and gas production, which has fallen 20 percent during the past decade, the authority said.

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

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

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