Norway Signals Moves to Cut Oil-Industry Costs in Late 2014

Norway, western Europe’s biggest oil and gas producer, may present new measures to reduce offshore industry costs later next year.

The government will consider possible tax incentives to increase recovery rates and ways to contain costs that are inhibiting output, Minister of Petroleum and Energy Tord Lien said in an interview in Oslo.

Costs in Norway’s offshore industry have risen 10 percent a year on average from 2003 to 2012, according to consultants Rystad Energy AS. The country’s crude production has dropped to less than half the 2000 peak as North Sea reserves are depleted.

“If the trend continues, it will become challenging to produce more, or just produce as much” as now, Lien said today.

It’s critical to invest in producing fields to raise recovery rates before they’re shut down, Lien said at a conference in Oslo. Challenges also include making new projects in mature areas of the North Sea profitable and reducing costs for exploration and production in harsh-weather areas in the Arctic, he said.

The measures would involve the petroleum and energy, labor and environment ministries and take a “significant part” of next year to work out, he said. The main responsibility of cutting costs lies with the industry itself, Lien said last week.

Developing Technology

“The key to maintain activity on the Norwegian shelf lies in a large part in continued technology development,” Lien said. While his government, which took office in October, has increased grants to petroleum research, he wouldn’t provide a target for how much authorities plan to spend in the future.

Norway needs both to develop new technology and implement innovations faster, Grethe Moen, chief executive officer of Petoro AS, the company that manages the Norwegian government’s direct stakes in oil and gas fields, said at the same conference. High costs are making the Norwegian offshore industry less attractive for international investors, she said.

Norway should double spending on research and development, which currently represents 0.1 percent of total revenues from oil and gas production, said Chairman Torjer Halle of oil-services company Schlumberger Ltd.’s Norwegian unit.

“It’s a better investment than putting it in the Oil Fund,” he said, referring to Norway’s $809 billion sovereign wealth fund.

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