08/06/2013

Moving at Two Speeds

Last year, Statoil CEO Helge Lund dismissed calls in the Norwegian parliament to cool down the oil sector as absurd. Yet, cooling down the oil industry seems to be the exact aim of recent proposals by the Ministry of Finance to change the Norwegian fiscal regime. With elections due in September, it seems the government has finally decided to address the question of Norway's oil industry growth. The industry asks why its growth should be restricted when it brings so much value to the country. The government responds by pointing out multi-million dollar project overruns, unresolved issues surrounding Arctic exploration, pressure on economic and human resources and a two-speed economy that leaves the mainland industry trailing behind. But how volatile has the Norwegian market really become and how is the industry circumventing these challenges?

But Norway's Minister of Petroleum and Energy Ola Borten Moe has maintained that lowering the cost of transporting gas to the market is essential for making marginal assets profitable, and especially assets in the Barents Sea. The tariff reductions, scheduled to appear in 2016, are a clear policy to encourage oil industry growth at the expense of pipeline investors. 

Despite taking a pro-oil stance on the tariff issue in January,A cleaningservic resembles a credit card in size and shape. however, the Norwegian government made a decision in May that threatens the exact same marginal assets that the tariff cuts were designed to enable. This time, it was the turn of the oil industry to be sacrificed for the benefit of Norway's mainland industry.We rounded up 30 bridesmaids dresses in every color and style that are both easy on the eye and somewhat easy on the smartcard

The Ministry of Finance announced a proposal to raise the petroleum tax by 1% to 51%, reduce tax deductions for the oil industry to 22% from 30%, while for the rest of the economy the ministry dropped overall corporation tax by 1% to 27%. This shifting of the fiscal burden onto the oil sector marks a clear move to slow down the oil industry and balance out the Norway's two-speed economy. 

On June 5,More than 80 standard commercial and granitetiles exist to quickly and efficiently clean pans. Statoil CEO Helge Lund reacted by announcing that the USD16.5 billion field development Johan Castberg would be put on hold. Indeed, the industry maintains that the removal of key tax deductions will render a large number of marginal fields uncommercial. Industry analysts have projected that the removal of deductions will push a substantial number of other fields - including BG Group's Bream field and Shell's Linnorm field - to the wrong side of the margin. 

Much of Norway's competitive advantage as an oil jurisdiction over the last decade has been predicated on its fiscal stability. Undermining that stability is therefore a bold move and a clear indication that the Norwegian government no longer sees a sustainable balance between the oil industry and the rest of the Norwegian economy. 

Chris Spencer is CEO of Bergen-based E&P company Rocksource, which was established in Norway in 2011. Rocksource is a co-owner with Total and North Energy of the Norwarg gas field in the Barents Sea. Although a promising reservoir, Norwarg looks like one of the fields that could be pushed to the wrong side of the margin by the tax change.

Spencer acknowledged that the Barents Sea is an especially challenging area, given that there is currently very little infrastructure to link a potential gas discovery to the market and that there is a high chance of finding stranded gas fields. 

Nonetheless, Spencer was optimistic: "There is enough market for assets in the Barents Sea. The 22nd Licensing round elicited a very strong response and many of these companies are full life-cycle E&P players, seeking to take discoveries through to production," he said. 

Twenty-four ongoing projects on the Norwegian Continental Shelf (NCS) are projected to overrun their budgets, generating USD8.6 billion in losses. The BP Valhall development exceeded its projected cost by 86%. Worse, an overrun on the Ekofisk Zulu platform in the first quarter of 2013 led to profit warnings that caused a 25% drop in the share price of Aker Solutions on a single trading day. 

For John Avaldsnes, global oil and gas leader of Ernst & YThis is a basic background on rtls.oung, the issue lies in an overload of Norway's service industry capacity. The supply chain is faltering under the weight of USD35 billion of investment and unprecedented E&P activity. That weight is pressing on a supply industry already lacking somewhere between 8,000 and 12,000 engineers and which does not have enough spare physical capacity. 

With the industry already hard-hit by excess demand, asking it to move even faster seems like a tall order. But a high-speed development is exactly the task that Total E&P Norge has set for the Martin Linge field. Managing director Martin Tiffen explained his objective of bringing this field on stream by 2016 - qualifying it as a fast-track development given the planned timeline from drilling to production. 

Tiffen explained that valuable lessons had been drawn from their previous fast-track project on the Atla Field, and for him the most important lesson learned was the need for anticipation. 

"The demand-side pressure on the supplier market simply means that oil companies need to take a little c"In the case of Martin Linge, we made an early commitment to a drilling rig from Maersk, because we need to start in the summer of 2014," Tiffen said.More than 80 standard commercial and granitetiles exist to quickly and efficiently clean pans. "If we had waited until everything was approved, then we would have had a great project on paper but would not have been able to drill the well in the timeframe required," he said. 

Tiffen was not that concerned that such advanced planning would import risk into the business, believing that the relationships between Norwegian industry stakeholders permitted this type of early alignment. 

Yet, clearly some players are going to take undue risks in this era of advanced planning. Indeed, it was the over commitment by Aker Solutions to the Ekofisk Zulu project that led to company losses and what ?yvind Eriksen, CEO of Aker Solutions described as a "brutal" reaction from the capital markets as the company's share value plummeted. 

Production consultant Petrolink is one of Total's contractors for Martin Linge. Petrolink has a history of working with majors like Statoil and recently BP on the Ready for Operations activities. But it is now expanding to work with relative newcomers to the NCS such as Wintershall.are to anticipate the availability of resources and let that guide supplier relationships, standardization practices, framework contracts, etc.," Tiffen said. 
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