Statoil Snorre Recovery Project Hesitation Criticised by NPD

Statoil ASA should push ahead with plans to boost output from its Snorre field in the North Sea and not let higher taxes and rising costs derail a drive to improve recovery rates, the Norwegian Petroleum Directorate said.

“There are so many resources in the ground” at Snorre, NPD Director General Bente Nyland said in an interview in Stavanger today. “So you can ask the question -- do you really need a carrot here?”

Statoil, Norway’s biggest energy company, is reviewing plans to build a new drilling and processing platform at Snorre to extract an extra 300 million barrels of oil because of a tax increase last year. While the increase, announced by Norway’s previous government, will hurt marginal projects, it shouldn’t affect the profitability of Snorre, Nyland said.

“We see good economics in this,” she said. “We can’t rest on the hope that taxes will save the Norwegian shelf.”

The Snorre project depends on finding “robust solutions” that are cost-effective, spokesman Oerjan Heradstveit said in an e-mailed response to questions. The petroleum tax change last year led to a weakening of the project’s viability, he wrote.

The company, which operates more than 70 percent of Norway’s oil and gas output, in February cut investment plans for the next three years by 8 percent to focus on shareholder returns amid rising costs and stagnating energy prices. Statoil, based in Stavanger, will become more selective about which projects it invests in, it said.

Unacceptable Delays

Norway’s Prime Minister Erna Solberg yesterday warned oil and gas producers against “unacceptable” delays to time-critical projects aimed at increasing recovery rates at offshore fields. Such delays risk harming goodwill they currently enjoy from the government, she said.

Snorre, which was discovered in 1979 and started production in 1992, still contains recoverable reserves of about 64.1 million cubic meters of oil and 0.3 billion cubic meters of gas, according to the latest available information on the NPD’s website. Statoil, the operator, has a 33.3 percent stake while other license holders include Exxon Mobil Corp. with 17.8 percent and Idemitsu Petroleum Norge AS with 9.6 percent.

The NPD fears more delays will be announced by companies operating off the coast of Norway, Nyland said. Oil and gas producers “should present convincing documentation” to prove that projects can’t be developed profitably, she said.

While Nyland said she can’t estimate the possible impact of delays or cancellations, the NPD expects that fields already in production will contribute almost a quarter of a new reserves target of 1.2 billion cubic meters during the next decade, it said today.

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