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UPDATE 2-Norway awards Arctic oil licences in northwards push
June 12, 2013 / 12:30 PM / 4 years ago

UPDATE 2-Norway awards Arctic oil licences in northwards push

* Norway awards 24 licenses to 29 companies

* Statoil, Shell, Conoco, Total, Eni among winners

* Tax change, high costs cast shadow over licensing round

By Gwladys Fouche

OSLO, June 12 (Reuters) - Norway awarded 24 oil and gas exploration licences on Wednesday, mostly in the Arctic Barents Sea, potentially offering some impetus to a northward push in the search for energy that has been held back by rising costs and taxes.

It granted licences to 29 companies, including international majors Royal Dutch Shell, BP, ConocoPhillips , Total and local heavyweight Statoil, in hopes of reviving oil production that is on course to fall to a 25-year low this year.

The Barents Sea, including its eastern edge along the Russian border, is estimated by the government to hold 7.9 billion barrels of oil equivalent in undiscovered oil and gas, but harsh conditions and a lack of existing infrastructure make development difficult and costly.

The government last month announced plans to increase taxes on oil firms, prompting Statoil to delay plans to develop the Johan Castberg field, the biggest find to date in Norway’s Arctic.

Statoil argued said the tax change raises costs, especially for marginal developments.

But Oil Minister Ola Borten Moe said on Wednesday, after announcing the results of the licensing round, that the country’s tax regime was stable and supportive.

“We still have a predictable investment-friendly tax framework; this (tax increase) was just an adjustment,” he said.

“Johan Castberg is a very large project and I think it will go through,” he added. “It is not abnormal, unprecedented or dramatic to use more time to work your way through a project so large.”

Analysts were more cautious, saying the tax change could have a wider impact and that the awards of licences did not automatically mean development would proceed.

“I actually find it hard to see anything positive when it comes to the Barents Sea now, in light of what has happened recently,” Anne Gjoeen, and oil sector analyst at Handelsbanken Capital Markets said.

“The Johan Castberg discovery initially attracted a lot of positive attention, now it turns out that even such a big oil find is not profitable to develop.”

“I am very unsure of the potential for profitability there (in the Barents Sea),” she said. “The cost inflation is high compared to oil price assumptions.”

HEAVY INTEREST

Interest in the Barents was rejuvenated two years ago when Statoil discovered Castberg, formerly known as Skrugard/Havis. Until then, close to 100 exploration wells had been drilled over three decades, with the vast majority proving to be dry.

The area’s chances would be boosted if more resources were discovered near existing ones, as this would reduce development costs.

“Many of the licences here are just around Castberg, so it seems like that’s where the focus is,” Carnegie analyst Martin Vold said. “I believe Castberg will be developed.”

Statoil was among the biggest winners in the licensing round on Wednesday, taking stakes in seven licences and winning the right to operate three of them.

Italy’s Eni will also operate three licences while OMV, still a relative small player in Norway, will have stakes in six licences. North Energy, one of the smallest firms in Norway, also received six stakes.

Newcomers will include Lukoil and Rosneft , who will become the first Russian companies to hold stakes in Norway.

Meanwhile BP, one of the biggest active players in Norway, received stakes in two licenses and no operatorship, while BG , Denmark’s DONG and Dana Petroleum did not win any licences.

Norway has some of the highest taxes in the world for its oil sector, but the regulatory regime favours exploration.

Unlike many major producers, it does not sell licences but awards them to the best applicants and refunds 78 percent of drilling costs.

It also allows firms to write off much of their development costs and recoups tax money once fields go into production.

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