Norway acts to boost blighted E&P sector

Norwegien project cost over-runs [108,778 bytes]

Norway's Ministry of Petroleum and Energy has announced new measures designed to maintain activity in its offshore oil and gas industry.

The news came on Mar. 11, a day after the reading before the Storting, Norway's parliament, of a white paper expected to start an investigation into how state firm Statoil AS ran into trouble on its ?sgard fields development (see story, p. 32).

Earlier, the ministry sacked most of the Statoil board, while Chief Executive Harald Norvik and deputy Chief Executive Terje Vareberg offered to resign, and the ministry began a search for replacements (OGJ, May 3, 1999, Newsletter). The recent revelation that the Åsgard development would exceed its budget of 28.5 billion kroner ($3.67 billion) by 17 billion kroner ($2.19 billion) was the catalyst for the boardroom clear-out.

Project over-runs

The Åsgard project over-run is just one of a long list anticipated by the ministry, which in February discovered that Norway's offshore operators expect to have to spend an extra 26 billion kroner ($3.4 billion) on 35 projects recently completed or under way (OGJ, Mar. 1, 1999, p. 32).

At that time, the Åsgard project was expected to cost 37 billion kroner ($4.84 billion) rather than the originally budgeted 28.5 billion kroner ($3.67 billion).

Of the 35 projects highlighted, only Åsgard has since had its final cost estimates raised further-and still more cost increases on Åsgard are thought possible by the ministry-while the remainder are expected to be completed according to the revised figures (see table above).

New measures

Regarding its new measures, the ministry said that there are currently few new development projects being brought forward by operators: "This could result in a steep fall in the activity level and employment in the sector, when the ongoing projects have been finalized."

As a first measure, the ministry proposes to allocate 100 million kroner ($13 million) to a program to encourage the development of project-related technology. The government expects that industry will fund the bulk of development of any technologies that are identified.

"The purpose of the proposal," said the ministry, "is to secure continued profitable development of the resources on the Norwegian continental shelf and to contribute to sustained competitiveness in Norwegian industry during a period of lower activity level.

"In addition to expectations of a more moderate activity level in the future, parts of the Norwegian continental shelf can be characterized as a mature petroleum province.

"This means that the industry needs to adapt, in relation to changing capacity requirements, (in such a way) as to respond to new technological needs in connection with future developments on the Norwegian continental shelf."

The ministry said that Norway's operators have cited technology development as the most important contributing factor to a further reduction in costs and consequently to generation of new profitable activities.

The authorities' support of project-related technology development is particularly important in the present situation, said the ministry, "where research and development activities have been subject to cuts due to limited earnings in the oil industry, as well as among contractors."

The funding will be channeled through the Norwegian Research Council. The ministry and the research council plan to appoint a steering group for the development program, to include representatives from oil companies, the supply industry, research institutions, and the Norwegian Petroleum Directorate.

Other measures proposed by the ministry include a gradual abolition of royalties from the eight fields required to pay them, and the establishment of concrete plans for licensing rounds over 5-year periods. These proposals are expected to be included in Norway's budget for 2000.