(Bloomberg) — Statoil ASA is forging ahead with an 8.2 billion-krone ($940 million) project designed to squeeze more oil and gas out of the Oseberg area of the North Sea, a rare investment decision amid a collapse of crude prices.
The Oseberg Vestflanken 2 project is designed to extract 110 million barrels of oil equivalent thanks to Norway’s first unmanned wellhead platform, the Stavanger-based company said in a statement. Cost cuts have reduced total investments by 1 billion kroner since the concept decision in February, it said.
The stripped-down facility, which will be tied in to the Oseberg field center, has contributed to lowering the project’s break-even price to $32 a barrel, making it profitable even at the current $37 Brent price, Ivar Aasheim, senior vice president for field development in Norway, said in an interview.
“We’ve come up with an incredibly economically robust project,” Ivar Aasheim, senior vice president for field development in Norway, said before presenting a development plan wrapped in Christmas-season gift paper to Petroleum and Energy Minister Tord Lien in Oslo. “This is the proof that Statoil works every day to further develop the large, old fields on the Norwegian shelf.”
Statoil is moving ahead with the project even as it cuts spending to cope with lower oil prices and following a decade of rising costs. Vestflanken 2, which will start production in the second quarter of 2018, is the first of three planned phases for the development of remaining reserves in the Oseberg area. It will play an important part in Statoil’s goal to maintain its production in Norway at current levels to 2030 and beyond, it said.
“Companies are working in a good and targeted manner on establishing a cost base that makes the resources on the Norwegian shelf profitable,” Lien said in an interview. “This is a project that really shows that it’s possible.”
Statoil is studying the use of unmanned platforms, which are new to Norway but have been used in Denmark and the Netherlands, for other projects, including at the giant Johan Sverdrup field, Aasheim said. They are “significantly cheaper than subsea” solutions, even though the difference depends on project specifics and market prices for equipment and services, he said.
“Manned platforms are very expensive,” he said. “If you have a manned platform and a field in a radius of 50 to 60 kilometers, you’ll always look to use what you already have. It’s always cheaper to tie in fields than to build new platforms.”
The break-even price for Sverdrup’s first phase, due to start production at the end of 2019, is lower than $40, Statoil has estimated before.
The producer, which acts as an operator for more than 70 percent of Norway’s output, plans to submit two domestic development plans next year, Trestakk and Alfa Sentral, Aasheim said.
“I doubt there will be more,” he said. “There is significant uncertainty” regarding the timing, and both development plans could be delivered in the second half of 2016, he said.
The government hopes other companies will also submit development plans, bringing the total in 2016 to more than two, Lien said.
“Companies are much more focused on protecting their cash flow, liquidity and ability to pay dividends the lower prices come,” he said. “But this project shows that even with $37 a barrel, no oil company makes plans based on $37 a barrel on average over the next 10 years. This project shows that even at this level, it’s possible.”
Statoil is the operator of the Oseberg field with a 49.3 percent stake, while Norway’s state-owned Petoro AS holds 33.6 percent. Total SA has a 14.7 percent stake and ConocoPhillips 2.4 percent.
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Copyright 2015 Bloomberg News.
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