March 20 (Bloomberg) -- Statoil ASA, Norway’s biggest energy company, may delay an investment decision on its Snorre project, highlighting how reduced spending is hurting marginal ventures such as increased-recovery efforts.
Statoil last year said it planned to build a new drilling and processing platform at the Snorre field in the North Sea to extract an extra 300 million barrels of oil and extend output until about 2040. The Stavanger-based company is now seeking cheaper options, citing an unexpected tax increase in Norway last year, said Chief Financial Officer Torgrim Reitan.
“We have to revisit the project, to look at concepts and make a new evaluation,” he told reporters in Oslo today. “It’s too early to say” if an investment decision will be made in 2015 as planned, he said, declining to comment further.
Statoil is scaling back spending and has signaled it will be more selective about which projects to invest in as costs mount and energy prices stagnate. The government has warned the 67 percent state-owned company that it can’t pick and choose projects based on profit alone.
“Cost reductions implying that companies leave profitable resources in the ground, are not OK,” Petroleum and Energy Minister Tord Lien said today in a speech to the Norwegian Oil and Gas Association in Oslo. “To extract only the most profitable oil or gas from a reservoir is not compatible with licensees’ obligations.”
Time-sensitive projects that are only viable while necessary infrastructure such as drilling platforms and pipelines remain in place mustn’t be delayed, Lien said.
Statoil last year postponed its Johan Castberg project in the Barents Sea, citing among other reasons the tax change that limited deductions companies can make. The company cut planned spending by 8 percent for the next three years.
The government will be monitoring progress on Snorre, which is “very important,” and similar projects, Lien said in an interview. While last year’s tax increase by the previous Labor-led government is being reviewed, he would not comment on the issue as it’s the prerogative of the Finance Ministry.
“Statoil is free to review the project, but we expect them to do what they’ve said they would,” Bente Nyland, director general of the Norwegian Petroleum Directorate, said in an interview. The tax increase “is one of several elements, but I don’t think it’s the determining one.”
Petoro AS, which manages the state’s direct ownership in oil and gas fields and is a partner in Snorre, said last month that the large oil companies’ investment cuts, coupled with rising industry costs, will create delays and may endanger projects. Increased-recovery projects like Snorre 2040 are particularly at risk, Petoro Chief Executive Officer Grethe Moen said at the time.
Statoil has a 33.3 percent stake in the Snorre field, according to data on the NPD’s website. Petoro holds 30 percent, Exxon Mobil Corp. 17.4 percent, Idemitsu Kosan Co. 9.6 percent and RWE Dea AG 8.6 percent. Core Energy AS has 1.1 percent.
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