Statoil Threatens to Shut Down the Entire Norwegian Continental Shelf

Gullfaks B platform, Photo: Ole Jørgen Bratland / Statoil, click for larger

STOCKHOLM–Oil and gas giant Statoil ASA (STO, STL.OS) and other companies represented by Norway’s Oil Industry Association have threatened to lock out workers and shut down production on the Norwegian continental shelf starting Tuesday in hopes of forcing an end to a crippling 12-day strike that has already put upward pressure on oil prices and crimped revenue.

Oil companies and three unions representing offshore workers have been negotiating on wages, but are clashing over employee demands for better pension terms. If an agreement isn’t reached in the near term, the lockout would put a halt to all oil and natural-gas production in Norway, which is Western Europe’s largest oil exporter and the world’s second-largest exporter of gas.

“The situation is completely locked and we stand as far from each other as we did at the very beginning,” said Bengt Eidem, spokesperson at the Oil Industry Association, or OIA. The OIA has said discussions about pensions don’t belong in wage talks, but unions have held firm on their demands.

“[A] lockout is the only measure we as employers can use to try and end this conflict and hopefully it will make the unions reconsider,” Mr. Eidem said.

The threat of a lockout is prompting speculation that the Norwegian government–whose $600 billion sovereign-wealth fund is entirely dependent on oil revenue–will be lured to step in.

Thus far, a little more than 10% of the 6,500 workers who are covered by the offshore wage agreement have actually been pulled off the job as a result of the strike that began June 24. At this level, the strike has slowed Norway’s oil output by 240,000 barrels per day, or 15%, and its gas output by 11.9 million cubic meters a day, or 7%, and has led to more than two billion Norwegian kroner ($331 million) in lost revenue for oil companies.

While Statoil is the biggest oil player in Norway, the lockout–which is slated to begin midnight Monday–would affect all of the 50 or so companies with production on the Norwegian continental shelf, including ConocoPhillips(COP), Royal Dutch Shell PLC (RDSA, RDSA.LN) and BP PLC (BP. BP.LN). Total production of oil and gas on the Norwegian continental shelf is 3.8 million barrels of oil equivalents a day, according to OIA, and the value of this daily production is estimated at NOK1.8 billion ($298 million).

The news sent crude-oil prices higher amid wider supply fears stemming from the European Union’s imposition of an embargo on Iranian crude-oil imports. The front-month August Brent crude-oil contract on London’s ICE futures exchange was up $1.85, or 1.8%, in recent trade, at $101.62 a barrel.

For Statoil, stopping production would lead to the loss of around 1.2 million barrels of oil equivalent per day. Statoil‘s lost revenue resulting from the production stoppage would amount to around NOK520 million ($87 million) per day.

“This will have major consequences for Statoil and for the Norwegian society as a whole,” said Bard Glad Pedersen, spokesman at Statoil. Shares of Statoil, which is 67% owned by the Norwegian government, traded down 1.55 at NOK142 on the news.

Unions and company negotiators last met Wednesday along with a third-party mediator, but the two sides were unable to agree on differences over pension terms. Further negotiations weren’t scheduled, and a meeting set up by the three unions–Energi Industri, SAFE and Lederne–Friday that was intended to discuss potentially heightening their strike activities by pulling more workers off the job has now been cancelled.

The new lockout threat could trigger more activity by the Oslo government, which in the past has been criticized for intervening too aggressively in other labor disputes outside the oil industry.

“I presume the government will intervene because the consequences of a lockout will be so tremendous for Norwegian society,” Fondsfinans analyst Morten Lindback said.

Morten Dagre, a spokesman at the Ministry of Labor, said the government is monitoring the situation carefully, but has no further comments at this time. The government has the ability to impose compulsory arbitration, a move that, in effect, would push striking employees back to work.

Leif Sande, leader of the Industri Energi union, said the decision was “terrible and irresponsible,” and “clearly an attempt by the employer side to pressure politicians to get involved and end the conflict.”

“We need to keep in mind that this is exactly what the unions were trying to avoid as it should force intervention from the government to force the workers back to work,” said Olivier Jakob, managing director at research company Petromatrix. Mr. Jakob pointed to a similar situation in 2004 when the Norwegian government forced the end of a strike following disclosure of a lockout.

If a lockout occurs, Norway-based Statoil–the biggest and most-influential oil producer in the country–would shutter production by taking all personnel off platforms in the Norwegian North Sea and return them to land, starting at midnight Monday. It could actually take one to four days to shut down all production on the shelf, depending on the characteristics and complexity of each field.

Statoil is the operator of the Heidrun and Oseberg fields, as well as the Brage, Veslefrikk and Huldra fields, all of which have been shut. It is also the biggest owner of the BP-operated Skarv field, which may face delays to its planned fourth-quarter start of production.

BP has Norwegian production of between 40,000 and 50,000 barrels of oil equivalent per day, all of which will be shut down in case of a lockout Monday.

– By Christina Zander, Selina Williams and Jens Hansegard contributed to this article, Dow Jones News Service