* Arctic drilling to hit record high
* Rising costs, small finds create challenge
* 2014 could be make or break year
By Balazs Koranyi
HAMMERFEST, Norway, April 1 Rising costs, lack
of infrastructure and a string of poor exploration results may
mean Norway's Arctic oil exploration peaks this year, energy
officials said on Tuesday.
Drilling in the Barents Sea will reach a record high this
year with 12 wells but the sector could quickly shift its focus
to more promising regions if the heavy investment fails to pay
off, especially as firms around the world are already cutting
back capital spending plans.
"There are dark clouds gathering on the horizon because of
rising costs and investment cuts by energy companies," oil
minister Tord Lien told Reuters on the sidelines of a
conference. "This could be a critical year for projects in the
"Costs are rising too high and too fast and the Norwegian
costs have increased a bit more than elsewhere," he added.
Exploration in 2013 was mixed and the few notable successes
were more than offset by either dry wells or small gas
discoveries, which tend to be uncommercial because the area
lacks the extensive pipeline infrastructure found in places like
the North Sea.
"The cost per produced unit (of oil and gas) in Norway has
increased dramatically, by tenfold over the past 10 years," said
Bente Nyland, the director of the Norwegian Petroleum
"The problem is that we have a lot of small discoveries but
no means of getting out the gas."
With no pipelines in the Arctic, the only way to get gas out
is Statoil's liquefied natural gas plant on Norway's
northern tip but the plant is expected to run at full capacity
for the next several decades, unable to take on new volumes.
The plant will be expanded only if there is enough gas
available and there is a viable market. However, energy firms
will not drill for more gas unless they know they can get it
out, said Grethe Moen, the CEO of Petoro which manages the
government's direct stake in oil licences.
"This is a Catch 22 situation," Moen told the conference.
"Given the current high cost level it's difficult to see new
Statoil drilled aggressively around its Johan Castberg
oilfield last year to secure more resources for the $15 billion
Arctic project but mostly found gas. The poor figures could
force the company to scrap a big onshore processing terminal
that was intended to accommodate future finds.
"The four wells we drilled resulted in ... far less than we
hoped," said Arne Sigve Nylund, Statoil production chief for
"Bringing the resource to shore requires resources of a
certain size but right now there's only Castberg," he said. "The
job is to bring down the costs to a level ... so we're also
studying offshore production and loading."
Weak exploration results this year would likely shift focus
to Norway's border zone with Russia, an area of the Barents Sea
that was opened to the sector just this year and has no oil and
gas infrastructure of any sort.
"It's a make or break year for the 'old' Barents Sea," the
petroleum directorate's Nyland said. "This year will be quite
important ... then the sector could shift to southeast Barents."
(Editing by William Hardy)