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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Why The Oil Crisis Was Good For Some Oil Companies

When Lundin Petroleum struck oil near a dry well 130 km from the Norwegian coast in the North Sea in 2010 few people, if anyone at all, expected the oil price crash that hit the industry in 2014 causing tectonic shifts and the resulting quakes. At the time, Johan Sverdrup was nothing short of a miracle solution to a growing problem Norway had: a persistent decline in oil production.

Today, it is one of the five biggest fields in Norway, and at peak production will account for 40 percent of the country’s total oil production, which is now set for growth thanks to that same field, Bloomberg reports in a recent story, citing state oil company Equinor (formerly Statoil). It also quoted Oil Minister Terje Soviknes as saying, “We would have had a mega-crisis. Thank god that we had Sverdrup. It rescued us through the oil downturn.”

How did that happen? Thank the price crash, which wiped out 50,000 oil jobs in Norway’s energy industry, raising unemployment to the highest in 20 years and forced the government to tap its sovereign wealth fund to fill the budget gap opened by the price collapse. At first, it may sound ridiculous that the same event that hit Norway’s economy harder than the 2008 crisis, according to Bloomberg, at the same time guaranteed it a future, but it is a fact.

The key was cost-cutting, which made Johan Sverdrup a commercially viable project despite the lower-price environment. Thanks to this viability, drillers and platform builders had work: Soviknes says the job losses would have been twice as many if Sverdrup had not been there to provide work for the sector. Also, it would have taken the economy longer to rebound were it not for this project.

The initial budget for the first and second phase of the field was calculated at between US$20.41 billion (170 billion crowns) and US$26.41 billion (220 billion crowns). To date, this has been reduced to just US$15.7 billion (133 billion crowns). The first phase of development is close to completion now and production should begin in 2019. Related: The Single Biggest Breakthrough In Oil Tech This Year

Sure enough, the savings Equinor, Lundin and their partners in Johan Sverdrup—Aker BP, Total, and Petoro—made during the last seven years were not only a result of conscious effort. Like elsewhere, oilfield service providers were forced by the crisis to cut their rates, which helped cut costs at Johan Sverdrup substantially. Efficiency enhancements also helped and now the field can break even at less than US$20 per barrel—something rare even in the U.S. shale patch.

During the first phase of operation, Johan Sverdrup will pump 440,000 bpd of crude, according to Equinor’s plans. During the second phase this will rise to 660,000 bpd. The field contains an estimated 2.1-3.1 billion barrels of recoverable crude and natural gas. It’s easy to see why the government considers it so important for securing the long-term future of its oil industry. The field is seen to be in operation for then next five decades.

By Irina Slav for Oilprice.com

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