UPDATE 1-Statoil suffers new setback at Arctic Castberg project

Thu Feb 20, 2014 3:17am EST

Related Topics

* New well only finds gas, not oil

* $15.5 bln project already on hold

* One more well planned (Adds detail)

OSLO, Feb 20 (Reuters) - Norway's Statoil drilled a third disappointing well near its Johan Castberg find in the Arctic Barents Sea, casting further doubt on the $15.5 billion project that is already on hold because of high costs.

Statoil said it found gas in a well near Castberg, a setback for the oil company as it looks for more oil as part of an ambitious exploration campaign aimed at securing more resources and improving the project's profitability.

"The exploration programme around the Johan Castberg field has been vital in providing area knowledge but so far not delivered expected oil volumes," Statoil said in a statement.

"Unfortunately, out of the four wells drilled to date only one has resulted in an oil discovery."

Statoil has one more exploration well planned for the area, which it plans to start drilling immediately.

Statoil found up to 600 million barrels of oil equivalent at Castberg in 2011 and 2012 and had already selected a concept for development before stopping the project last year because of a tax increase.

It argued that the tax, currently under review by the new centre-right government that came into power in October, reduced the financial viability of the project.

Its operating costs have also become an issue as they have risen by 7 percent a year on average from 2005 to 2012.

Statoil owns 50 percent of Castberg, Italy's Eni has 30 percent, and Norwegian state-holding firm Petoro owns the rest. (Reporting by Gwladys Fouche and Balazs Koranyi; editing by Jane Baird)

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