Oil Crash Risks Further Delay at Statoil’s Johan Castberg Project

polar pioneer drilling rig statoil transocean johan castberg
Transocean’s Polar Pioneer drilled the wildcat well which discovered the Johan Castberg field in 2011, image (c) Statoil/Harald Pettersen

By Mikael Holter

(Bloomberg) — Statoil ASA could be forced to delay its Johan Castberg project in Norway’s Arctic waters for a third time after oil prices dropped by more than half since June.

“It remains to be seen whether we’re able to come up with a good enough solution within the timeframe that’s been set,” Eldar Saetre, Statoil’s acting chief executive officer, said in an interview in Oslo today. “There’s a situation that forces us to make tough prioritizations.”

Norway’s biggest energy company delayed Castberg for a second time last year after disappointing exploration results in the Barents Sea failed to boost the profitability of the project, which the Stavanger-based explorer says was already challenged by rising costs and a tax increase. The state- controlled company said in November it plans to present a development concept for Castberg in July.

Brent crude, the European benchmark, has dropped from $115 a barrel in June to less than $52 a barrel, prompting oil companies to reconsider projects around the globe. Arctic oil fields such as Castberg, which are already expensive because of a lack of infrastructure and harsh conditions, are especially vulnerable.

Castberg is still profitable at prices below $80 a barrel, Statoil said in November. Rystad Energy AS, an Oslo-based industry consultant, has said the break-even price for a standalone development of Castberg, which would exclude earlier plans for a new land-based oil terminal, is $60 to $70 a barrel.

New Developments

Norway is betting on new developments in the Barents Sea, which is thought to hold more than 40 percent of the nation’s undiscovered resources, to compensate for falling production from aging fields in the North Sea.

Statoil’s Snoehvit gas project is the only field in operation in the Norwegian Barents. Eni SpA’s Goliat will be the first oil project, and it’s headed for a 50 percent cost overrun when it starts production this year.

Investment decisions in oil projects in Norway’s Arctic are “difficult to imagine” at current crude-price levels, said Luis Araujo, chief executive officer of offshore engineering company Aker Solutions ASA.

“A lot will be pushed forward,” he said in an interview on the sidelines of a conference organized by the Confederation of Norwegian Enterprise.

(c) 2015 Bloomberg.