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Statoil May Order Tailored Rigs to Combat High Norway Costs

Statoil ASA, Norway’s biggest oil and gas producer, may order additional new-build drilling rigs specially designed for its activities off the country’s coast in an effort to combat rising costs and a capacity shortage.

Since July 2011, Statoil has awarded Songa Offshore SE contracts for four new semi-submersible rigs tailored to its needs on eight-year charters valued at more than $5 billion. The oil producer may order more of the so-called “category D” rigs, Torgeir Loeland, Statoil’s head of rig strategy and procurement, said in an interview in Oslo yesterday.

“When we’ve spent time and effort ordering four, it gives us a drive to do more,” Loeland said. Building the new rigs according to strict technical and safety requirements in Norway is cheaper than adapting existing units from elsewhere, he said.

Drilling costs in Norway doubled between 2000 and 2010 and are now as much as 45 percent higher than in the neighboring U.K., a government-commissioned report showed last month.

Norway needs to simplify rules for offshore rigs and reduce labor costs to address the issue and support efforts to increase oil production, which has almost halved during the last decade, the report said.

Norway’s Oil Minister Ola Borten Moe this month ruled out rules to curb wage growth and said any reduction in drilling costs would have to be achieved through innovation and technological improvements.

Contract Awards

Statoil will also award contracts for at least two new “category J” jack-up rigs before the end of the year, according to Loeland. The company may take an ownership stake in those rigs, and may also do the same if it decides to order more “category D” rigs, he said, without providing details.

The new rigs will also help rejuvenate the fleet in Norway, Loeland said. “We’re not reaching our goals with many of the older rigs,” he said.

The Stavanger-based company this year awarded Aker Solutions ASA a $1.9 billion contract for a “category B” rig that is specially tailored for increased oil recovery. It also signed agreements with Island Offshore Management AS and Eide Marine Services AS, valued at $9.4 billion, for three “category A” light well intervention ships.

Shares in Statoil have increased 26 percent during the last 12 months, outperforming a 13 percent gain in the oil price. Statoil traded 2 percent lower at 150.5 kroner as of 11:24 a.m. in Oslo, while oil for November delivery was 0.7 weaker at $90.73 a barrel in electronic trading on the New York Mercantile Exchange.

Statoil was downgraded to sell from buy at Nordea Markets, the broker said in an e-mailed statement today.

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