Crisis in Norway's Oil Industry Deepens Amid Further Cuts

  • Oil companies deepen investment cuts to 14% this year: SSB
  • No rate cut by central bank would be `huge surprise': Nordea

Oil and gas companies operating in Norway deepened estimated spending cuts for this year to 14 percent as crude remains mired in the low $30s, adding pressure on the country’s central bank to cut interest rates.

Investments in Norway’s offshore industry are expected to fall to 164 billion kroner ($19 billion) in 2016, compared with 190 billion kroner last year, Statistics Norway said Wednesday in its quarterly survey of oil companies. Investments in western Europe’s biggest oil and gas producer were seen at 171 billion kroner for this year in a November survey.

The central bank in December predicted an 11 percent drop in oil investments for 2016. Deeper-than-expected cuts will likely raise concerns at the central bank as oil investments are a key factor in the economy, according to Nordea Bank AB.

“It will be a huge surprise if Norges Bank doesn’t cut rates in March,” said Erik Bruce, a senior economist at Nordea in Oslo.

The krone declined 1 percent to 9.59 per euro as of 2:11 p.m. in Oslo.

The central bank cut rates three times in one year as the collapse in crude prices threatened growth in the oil-reliant economy. That, along with a 70 percent drop in oil prices since a June 2014 high, has driven down the krone 15 percent against the euro in the same period. More than 30,000 jobs have been cut in the offshore industry over the past two years, according to DNB Markets.

Field Shutdowns

In another illustration of the impact of the oil rout on Norway, Statoil is planning to shut its Veslefrikk field in the North Sea two years early, in 2018, because of profitability challenges, spokesman Morten Eek said, confirming information in a government letter obtained by Bloomberg. Repsol said earlier this month it was shutting its Varg field early because of lower prices.

“There is a crisis on the west coast of Norway,” Gerd Kristiansen, the head of the Norwegian Confederation of Trade Unions, said Tuesday in a speech in Oslo. Not a day goes by that she doesn’t hear from a petroleum-related business on how dire the situation in the nation’s oil centers has become, she said.

The reduction in the oil companies’ investment estimate for 2016 compared with the previous quarter’s survey is due to a 26 percent cut in the outlook for exploration spending, Statistics Norway said in a statement. Exploration investments are now seen at 16 billion kroner in 2016, down from 29 billion kroner last year.

Oil driller shares fell after the report was released. Seadrill Ltd. slid as much as 7.8 percent while the stock of Odfjell Drilling Ltd. slumped as much as 7 percent.

“The further decline in oil prices seen in recent months have contributed to more uncertainty among oil companies,” as well as to lower cash flow, Statistics Norway said. “These conditions affect both the will and the ability to make investments.”

Central bank Governor Oeystein Olsen said this month that the government will need to withdraw almost $10 billion from its $810 billion wealth fund as it seeks to support the economy.

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