- Castberg break-even price already cut to $60 a barrel from $80
- Floating production unit seen as cheapest way to develop field
Statoil ASA is working to reduce the break-even price of its delayed Johan Castberg oil field in the Barents Sea to below $50 a barrel as it seeks to squeeze profit from the project after crude markets collapsed.
Norway’s biggest oil company has already cut the price at which it recoups its costs from the Arctic field to $60 a barrel from $80, it said last month. Now it has “significantly higher ambitions,” Erik Strand Tellefsen, vice president for field development in northern Norway, said Monday.
“The oil price today is below $50, so you won’t get a project approved that doesn’t have a corresponding break-even,” he said in an interview in Oslo.
Statoil, based in Stavanger, has reduced spending and deferred projects to weather the slump in oil to less than $45 a barrel from a high of $115 in June last year. A decision on the development concept for Castberg, once considered a breakthrough resource for the Barents Sea, is planned for the second half of 2016 after being delayed three times since 2013. An investment decision is due in 2017.
Castberg’s woes underscore the difficulties faced by oil companies in the Arctic, where harsh weather, environmental challenges and insufficient infrastructure drive up costs. State-controlled Statoil recently followed Royal Dutch Shell Plc in abandoning exploration off Alaska, and won’t drill any more exploration wells in the Barents Sea until 2017 at the earliest, it said Monday.
Developing Castberg with a floating production, storage and offloading unit remains the cheapest option, Tellefsen said. The cost of deploying an FPSO has fallen about 30 percent from the initial 90 billion-krone ($10.4 billion) estimate, while using a semi-submersible platform with pipes and an onshore terminal, as previously favored by the company, would be about 10 billion kroner more expensive, he said.
Statoil is in contact with other companies operating in the area, such as Lundin Petroleum AB, to see how they plan to develop their finds, though Lundin’s projects are at an earlier stage, Tellefsen said. “None of the other players in the area have reached the same maturity,” he said.