Statoil Spending Cuts Threaten Norway Projects, Petoro SaysMikael Holter
Spending cuts from oil companies such as Statoil ASA and rising industry costs will create delays and may endanger projects offshore Norway including a new platform at the Snorre field, government-owned Petoro AS said.
Stavanger-based Statoil, the operator of more than 70 percent of Norway’s oil and gas output, this month said it would cut investments in the next three years by 8 percent as it seeks to boost shareholder returns amid rising costs. That could hurt Norway’s push to raise oil-recovery rates, Petoro, which manages the government’s direct stakes in offshore fields, said in a statement posted on its website yesterday.
“Postponements can hit time-critical projects in order to maximize the value of the big mature fields,” Chief Executive Officer Grethe Moen said in the statement. “One example of a project which could end up in the danger zone is a new platform for drilling additional wells on the Snorre field.”
Statoil’s decision to cut investments earned it a warning from the government that it must commit to planned projects. Petroleum and Energy Minister Tord Lien said this month that Norway needs more large companies to increase competition as the country’s oil output has dropped for 13 consecutive years. The Conservative-led government also plans to strengthen Petoro in a bid to give increased-recovery projects higher priority in offshore license partnerships.
Statoil last year delayed its $15 billion Johan Castberg oil project in the Arctic Barents Sea, citing higher costs among other factors. It also scrapped a planned gas pipeline and delayed the production start at the Johan Sverdrup field, the biggest oil discovery offshore Norway in decades.
“Postponing developments will certainly help to strengthen short-term cash flow for the companies,” Moen said. “But it does not in itself represent an instrument for boosting productivity and reducing costs.”
Statoil plans to build a new processing and drilling platform to increase oil production at its Snorre field in the North Sea by about 300 million barrels. A final development concept decision is due in the first quarter of 2015.
“Its cost nevertheless makes the investment marginally profitable for the companies,” Moen said. “We must accordingly work hard up to the investment decision to make the project more financially robust by reducing costs and enhancing productivity.”
Partners at the Snorre field include Exxon Mobil Corp., Idemitsu Petroleum Norge AS and RWE Dea AG.
Cash flow from Petoro to the government fell to 124.8 billion kroner ($21 billion) in 2013 from 146.9 billion kroner in 2012 due to higher investments and lower gas sales, the company said. Capital spending rose 34 percent to 34.4 billion kroner, and will rise to about 40 billion kroner annually in the next few years, twice the level in the 2005 to 2011 period, Petoro said.
Production fell 9 percent to 1.034 million barrels of oil equivalent a day in 2013. While spending will continue to rise, it won’t increase oil production which has been falling for more than a decade, Petoro said.
“The impact on oil production will be limited to flattening out the decline under way ever since 2001,” the company said. “A substantial part of the investment growth reflects price rises which cannot be attributed to the increase in activity.”
Petoro accidentally published the press release on its 2013 results yesterday and will publish a full report at 10 a.m. today.