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In an effort to try and encourage more exploration and development of oil in its northern regions, on Wednesday Norway awarded 24 new oil and gas exploration licenses, with most located in the Barents Sea, in the Arctic.
Norway wants to increase production levels, which are set to fall to a 25 year low, and granted licenses to heavyweights such as Royal Dutch Shell, BP, ConocoPhillips, Total, and Statoil, amongst others.
The Barents Sea has been estimated to hold as much as 7.9 billion barrels of oil equivalent, but the harsh weather, and lack of infrastructure make it a very expensive region to develop. To compound those cost fears, the Norwegian government has just announced plans to increase oil taxes, a move that could have drastic consequences on future investments.
Statoil has already delayed the development of its giant Johan Castberg field, as it reassesses the profitability of the project.
Related article: The Arctic is Thawing, but Hasn’t Released Trapped CO2
Oil Minister Ola Borten Moe claims that the tax regime is stable and supportive and should have little effect on investment decisions. “We still have a predictable investment-friendly tax framework; this was just an adjustment. Johan Castberg is a very large project and I think it will go through.”
However, industry analysts have not been as confident, concerned that the tax change may still cause a reduction in investment, and stating the fact that awarding 24 new licenses does not mean that development will follow. Anne Gjoeen, an oil analyst at Handelsbanken Capital Markets, said, “I actually find it hard to see anything positive when it comes to the Barents Sea now, in light of what has happened recently.
The Johan Castberg discovery initially attracted a lot of positive attention, now it turns out that even such a big oil find is not profitable to develop.
I am very unsure of the potential for profitability there (in the Barents Sea). The cost inflation is high compared to oil price assumptions.”
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com