Norway Warns Oil Companies Against ‘Unacceptable’ Project Delays

Norway, western Europe’s biggest oil and gas producer, warned companies that “unacceptable” delays to offshore projects risk damaging the goodwill they currently enjoy from the government.

Scrapping or delaying time-critical projects designed to boost recovery rates at fields in operation are not viable options for cutting costs, Prime Minister Erna Solberg said today at a conference in Fornebu, near the capital, Oslo.

“We can’t force them not to delay those projects, but we clearly mean that this will affect any given company’s goodwill in Norway going forward,” Solberg said in an interview. “It’s not acceptable.”

The government will use its direct stakes in oil fields to ensure such projects are realized, she said.

Oil companies from Statoil ASA to Royal Dutch Shell Plc are cutting investment plans as they grapple with rising costs and falling returns amid stagnating energy prices. Statoil, Norway’s biggest oil and gas producer, has been warned by the government to maintain its level of developments after the company said in February it would invest 8 percent less than originally planned during the three next years.

Stavanger-based Statoil, which operates more than 70 percent of Norway’s oil and gas production, said last month it may delay plans for a new drilling and processing platform at its Snorre field in the North Sea designed to boost extraction by 300 million barrels of oil.

Tax Increase

The company cited a tax increase by Norway’s previous Labor-led government as one of the reasons it’s reviewing the project and now considering cheaper solutions.

The Conservative-led government has said it could make changes to petroleum taxation after reviewing the consequences of last year’s increase. It’s also said it will study tax incentives for increased-recovery projects specifically. No decision has yet been made, Solberg said today.

“Licensees have a responsibility to society to extract all profitable resources from the fields,” she said. “If projects are put on hold with a view to cutting costs in the short term, the licenses will not be able to fulfil their obligations.”

While authorities must look at policy, the responsibility to cut costs lies mainly with the oil and gas industry, Solberg said. The government will continue to spend on research and education to make the industry more competitive, she said.

Statoil last year postponed an investment decision on the Johan Castberg oil project in the Arctic Barents Sea because of higher costs, taxes and uncertain resource estimates. It also scrapped a planned gas pipeline at its Kristin field in the Norwegian Sea.

Before it's here, it's on the Bloomberg Terminal.