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There’s no doubt that, like other major energy-producing countries, Norway faces challenges from the plunge in oil prices. But state-owned Statoil says its can continue to be profitable through partnerships with other oil companies and developing more “fast-track projects.”
The price of Brent crude, a benchmark oil that’s harvested by Norway and its neighbors, has dropped $35 from its record high in June to below $80. This cuts into profits and limits oil companies’ investments, especially in expensive ventures such as Arctic drilling.
Should Norway be concerned about drilling farther north in its Barents Sea, which holds an estimated 40 percent of the country’s energy resources? Exploiting the region has long been viewed as a way to end a decline in the country’s production of crude for more than a decade.
But work in the Barents can’t begin until Statoil can first build an infrastructure, such as pipelines and terminals for the oil. For example, the Norwegian government says the first field in the region scheduled to begin production, run by Italy’s oil and gas company ENI SpA, is now expected to face cost overruns when it begins work in 2015.
Nevertheless, Statoil isn’t worried, and in fact is bullish about its Johan Castberg oil field in the Barents Sea. Erik Strand Tellefsen, its vice president for field development in northern Norway, told Bloomberg News on Nov. 16, “We’ll be able to find a profitable standalone solution for Castberg, even with the current oil price.”
The key, according to Tellefsen, is building inexpensive floating infrastructure for production, storage and offloading. He said Statoil also may team up with Sweden-based Lundin Petroleum, which recently has discovered nearby oil fields, to keep costs low by building a new oil terminal at North Cape in extreme northern Norway. Statoil also is in talks with OMV, based in Vienna, about the project.
What’s more, Statoil’s field development director for Norway, Ivar Aasheim, says the company plans to mount several fast-track projects. He told Reuters in Stavanger, Norway, on Nov. 19, “We could easily have three, four, five fast-track projects in 2015, -16 and -17.”
One such project could even begin before the end of 2014, Aasheim said.
Fast-track projects target less-complicated energy discoveries with relatively small yields into quick development, halving the time it takes to begin actual harvesting of oil or gas. Costs are controlled by shunning new, cutting-edge and expensive equipment and techniques, instead settling for standard approaches and gear. Already, Statoil has approved 11 fast-track projects for the coming years.
But Aasheim cautioned that Statoil's plans could be crimped if the drop in oil prices continues much further. “Everything has a limit,” he said, “so if the oil price goes down to $60 [per barrel], then it will be very difficult to get an investment decision for these projects.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com