Norway investment falls despite exploration hope

OREANDA-NEWS. Oil and gas investment in Norway could fall by around 7.5pc next year, as lower oil prices have forced companies to slash costs and delay some projects.

Firms operating in Norway could cut total investment to 153bn kroner ($18.4bn) next year, down by almost 8pc from 2016, government agency Statistics Norway says (see table). But exploration spending may buck the trend — the only category in which investment is expected to increase year on year — jumping by 20pc, probably because of new drilling campaigns in the Barents Sea.

State-controlled Statoil is among the companies planning Barents Sea exploration next year — the first time since 2014. Statoil and Swedish independent Lundin Petroleum won the highest number of stakes in 10 new production licences in the region, including three in newly opened southeastern areas formerly disputed by Russia — the first new Norwegian offshore area opened for exploration since 1994. Other firms securing licences include Chevron, Norwegian independent Det Norske, London-listed Cairn Energy and Russian oil firm Lukoil.

New blocks were also awarded near "the Alta and Wisting discoveries, with a view to strengthen the resource base for future development", the Norwegian Petroleum Directorate (NPD) says. Wisting, operated by Austria's OMV, could hold 200mn-500mn bl of oil equivalent (boe). The Alta and Gohta discoveries, operated by Lundin, may hold a combined 216mn-584mn boe.

Sharply lower oil prices in the past two years have squeezed exploration budgets and resulted in lower activity — despite Norway refunding up to 78pc of exploration expenses. The Barents Sea is a harsh operating environment and a frontier area with a lack of infrastructure, meaning higher costs than in many other regions. This makes it harder for companies to justify exploration in the lower oil price environment.

Field development investment in Norway next year is expected to fall by around 16pc to NKr47bn compared with planned spending in 2016 — a drop of 35pc from the 2014 peak — as firms cut costs for projects under development, delay bringing fields on stream and stall final investment decisions (FID) on potential project.

s.The cost of developing the 1.7bn-3bn boe Johan Sverdrup field in the North Sea — the biggest project offshore Norway — will probably fall further, particularly at the time of phase 2 concept selection this year, Lundin chief executive Alex Schneiter says. Lundin holds a 22.6pc stake in Johan Sverdrup, where Statoil has a 40.0267pc operating interest. "We completed a debottleneck study for phase 1 of the project recently, which identified a potential processing capacity increase to 440,000 b/d from the previously guided range of 315,000-380,000 b/d," Schneiter says. Phase 1 will be on stream at the end of 2019.

Det Norske, which holds an 11.6pc stake in Johan Sverdrup, earlier this year put phase 1 investment at an estimated NKr108.5bn, down from Nkr114bn last September and Nkr123bn when FID was reached in February 2015.

The Det Norske-operated 65,000 boe/d Ivar Aasen project in the North Sea, one of only a handful of developments offshore Norway, should come on stream on 1 December. Total's Gina Krog oil and gas field project, which will be on line next year, will plateau at around 60,000 b/d of liquids and 3.3bn m?/yr of gas.

The NPD lists 19 discoveries of various sizes in the planning phase, but most will not secure approval this year or next. Centrica plans to reach FID on one of them — the North Sea Butch field — late this year. Crude output there is forecast to plateau at around 28,000 b/d in 2019-21.