Norway, western Europe’s biggest oil producer, will probably cut its long-term forecast for crude production as companies reduce spending to counter rising costs and improve shareholder returns.
As investments in Norway’s oil industry fall after a peak this year, production beyond 2015 will be lower than expected, according to Bente Nyland, head of the Norwegian Petroleum Directorate. The estimate cuts are expected to be reflected in the NPD’s annual prognosis scheduled to be published in January.
“There might be a certain decrease,” she said in an interview in Stavanger today. “It’s capital discipline, it’s costs.”
Norway is struggling to sustain oil production that’s more than halved since a peak in 2000 as producers including Statoil ASA scale back spending plans. The NPD in its latest prognosis in January predicted oil production would rise this year and remain stable through 2018. Still, the forecasts were lower than those made at the beginning of 2013.
Oil companies operating in Norway could reduce investments by more than 20 percent next year as they fight costs that have cut margins amid stagnating oil prices, Statistics Norway said in June. Statoil, which operates more than 70 percent of the country’s offshore platforms, in February said it will cut planned investments during the next three years by 8 percent at the same time as abandoning earlier goals for production growth.
“There’s a large gap between what’s profitable for society and what’s profitable for companies,” Nyland said today. “That might be the biggest obstacle.”
Norway’s government has warned companies not to let lower spending impact planned projects and particularly time-critical measures aimed at increasing recovery from existing fields. Petroleum and Energy Minister Tord Lien today reiterated that warning in a speech at the ONS conference in Stavanger, pledging in return to keep framework conditions stable and predictable.
“Producing easy oil only is not in accordance with good resource management and the license to operate,” the minister said. “Cost cutting and capital discipline are important rules in order to produce more resources. However, it should not lead to leaving economic resources in the ground.”
Oil companies have complained that a tax increase last year by Norway’s previous government has made projects less profitable. Together with a move by Parliament this year to force operators to power four offshore fields from land, the tax increase has introduced more political risk in Norway, the Norwegian Oil and Gas Association, a lobby group, has said.