Bloomberg News

Norway’s Drilling Costs Create Disadvantage, Lundin CEO Says

August 27, 2012

Lundin Petroleum AB (LUPE), which holds a stake in the biggest oil discovery off the coast of Norway since the 1970s, said the country should tackle high drilling costs.

“The cost structure in the Norwegian North Sea is extremely high, and that does put at some point Norway in a disadvantaged position,” President and Chief Executive Officer Ashley Heppenstall said today in an interview in Stavanger, on Norway’s western coast. “They’ve got to acknowledge the issue, and they’ve got to get the balance right between regulation and cost.”

A report ordered by the Norwegian government this month showed that tighter regulations and higher labor costs are making drilling more expensive in Norway than in countries such as the U.K. Drilling costs, which doubled from 2000 to 2010, mean Norway isn’t reaching its potential in terms of oil and gas output, the committee’s leader, Eivind Reiten, said Aug. 16.

Lundin has a 40 percent and 10 percent stakes in the two licenses that hold the Johan Sverdrup field, Norway’s biggest find for more than 30 years.

Partner Statoil ASA (STL) said today a new find had been made at Geitungen in the PL265 license where Lundin has a 10 percent interest, which is probably linked to Sverdrup and could hold as much as 270 million barrels.

“It validates the view that there’s more to find on the Utsira High,” as the area is known, Heppenstall said.

Bigger Pie

Statoil’s director for operations at Johan Sverdrup, Oeivind Reinertsen, said today that the schedule for the development of the field, which would have it producing by the end of 2018, could be adjusted. Heppenstall said the partners’ primary objective was to “make the pie as big as possible” by appraising the find, before deciding on the best way to develop it by the end of next year.

He said there would then be a debate on how to divide the find among the partners, and that it was too early to say which share each would get.

“We’re all grown-ups, and we’ll come to a resolution,” he said. “I’d be very happy if we got a smaller percentage of a bigger pie.”

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net


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