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Oil producers see Norway investments plummeting 21% in 2015

MIKAEL HOLTER

OSLO, Norway (Bloomberg) -- Oil and gas companies operating in Norway, western Europe’s biggest producer, predict they will cut investments by 21% next year, the first drop since 2010, to cope with rising costs and stagnating energy prices.

Investments are forecast to decline to 182.4 billion kroner ($30.4 billion) from a record 231.7 billion kroner this year, Statistics Norway said today, June 12, citing a quarterly survey of producers and explorers.

“Investments will reach a peak in 2014 and fall again in 2015,” the agency said in a statement. “The decrease is mainly due to significantly lower estimates of field development and fields on stream.”

Oil companies in Norway have more than tripled investments during the past decade as costs and activity climbed, driven by new finds. Companies including Statoil ASA, which operates more than 70% of the nation’s oil and gas output, have cut spending plans for the coming years to boost returns.

Decline

The “dramatic decline” in oil investments will result in Norway’s central bank postponing an interest rate increase “at least until the autumn” of next year, Marius Gonsholt Hov, an analyst at Svenska Handelsbanken AB, said in a note.

Norges Bank had previously signaled it may raise rates during the summer of 2015.

The oil and gas industry accounts for more than a fifth of the nation’s gross domestic product, and its petroleum revenue has helped it build a $880 billion sovereign wealth fund, the world’s biggest.

Spending on field developments is expected to fall by 33% to 56.3 billion kroner, Statistics Norway said. That decline could be moderated when spending estimates are included for the development of Johan Sverdrup, Norway’s biggest oil discovery in decades, the agency said.

Sverdrup

The development plan for Sverdrup, due to start production at the end of 2019, is expected early next year, acting operator Statoil has said. Investments could reach 120 billion kroner for the project’s first phase alone.

Spending on already producing fields are forecast to drop by almost 20% to 75.4 billion kroner in 2015, according to Statistics Norway. Oil companies also cut their estimates for this year’s investments on producing fields by 5% from a previous forecast in March.

Norway’s government, including state-owned oil firm Petoro AS, has voiced concern about delays and cancellations of time-critical projects designed to increase recovery at producing fields. Statoil plans to deepen investment and cost cuts beyond 2016 targets announced earlier this year, according to internal documents seen by Bloomberg News last week.

Forecasts

While Statistics Norway’s estimate for total investments in 2014 was increased 3.6% from its previous forecast, that rise is largely due to the addition of shutdown-and-removal spending in the forecast. The latest survey is the first time companies have been asked to give forecasts for next year.

The Norwegian Petroleum Directorate said in January it expects investments by oil companies to reach a record 214 billion kroner in 2015 before falling to 204 billion kroner a year in the period from 2016 through 2018.

Rising costs and uncertainty about oil prices are a “significant challenge” to the development of Norway’s oil and gas production, which has fallen 20% during the past decade, the authority said.

06/12/2014

 

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