sliepner a platform statoil north sea

Norway May Align Offshore Drilling Rules With U.K. in Bid to Tackle Costs

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February 17, 2014

Sleipner A Platform, image (c) Øyvind Hagen – Statoil ASA

Feb. 17 (Bloomberg) — Norway, western Europe’s largest oil and gas producer, may align regulations for offshore drilling with the U.K. in an attempt to reduce costs which are as much as 45 percent higher than its neighbor.

“That’s one of the things we need to consider,” Petroleum and Energy Minister Tord Lien said in an interview in Oslo today. “The need for drilling capacity from floating rigs will become even greater” as more oil and gas is produced using subsea installations without permanent platforms, he said.

Drilling costs in Norway are among the highest in the world, exceeding those in the U.K. by as much as 45 percent, a government-commissioned report concluded in 2012. Norway needs to address labor costs and simplify rules and requirements for offshore rigs to reduce that gap, according to the report, led by former Norsk Hydro ASA Chief Executive Officer Eivind Reiten.

While regulations must be reviewed, any change to rules on shifts and wages must be addressed through talks between labor unions and employers, Lien said.

Norway’s Conservative-led government is looking at measures to reduce costs in Norway’s oil industry, which have risen by about 10 percent a year during the last decade, according to industry consultant Rystad Energy AS. Cost inflation and a planned reduction in spending by oil companies are threatening future projects off Norway and particularly efforts to increase the recovery rate at existing fields, the Norwegian Petroleum Directorate has said.

Project Delays

Statoil ASA, Norway’s biggest oil company, last year delayed its Johan Castberg project in the Arctic Barents Sea, citing higher costs and taxes. It also delayed the start of production at the Johan Sverdrup field, the biggest oil find off Norway in decades, and shelved plans for a pipeline at the Kristin field.

“I’m worried about cost development,” Prime Minister Erna Solberg said today after meeting with Lien, Finance Minister Siv Jensen, company officials including Statoil CEO Helge Lund and union representatives.

“There’s a need for a bit more industrialization in the industry itself,” Solberg said. “That means they need to copy projects and reduce the amount of hours” spent on engineering, she said. “Some government requirements can be reviewed as well,” the prime minister added.

Measures to cut costs may include reducing bureaucracy both within the government and in the industry itself, and also tax incentives for encouraging increased recovery, Solberg and Jensen said. The government is also reviewing the consequences of a tax increase for oil companies decided by Norway’s Labor- led government and may consider changes, they said.

Any fiscal changes would be included in future government budgets, Jensen said in a separate interview. Though all three government officials today declined to say when measures could be presented, Lien has said that none are expected before late 2014.

– Mikael Holter, Copyright 2014 Bloomberg.

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