August 30, 2012 / 9:36 AM / 8 years ago

Norway's oil pay bonanza a ticking time bomb

STAVANGER, Aug 30 (Reuters) - Paid more than the average American CEO, Norway’s oil workers are demanding an even bigger bounty, threatening strikes and chewing away at the competitiveness of a vital European oil and gas supplier.

Riding a global exploration boom and backed by Europe’s fastest growing economy, oil workers in Norway, the world’s eighth biggest oil exporter, can almost set their own terms. And they are taking advantage.

Offshore workers shut part of the sector last month with a 16-day strike for better pay and the right to early retirement, and services workers are threatening a September shutdown if their own terms are not improved.

The labour action was a blow for a sector already struggling with record output costs, falling volumes and shrinking margins.

“As a Norwegian, it’s almost embarrassing that it’s twice as expensive to drill in the Norwegian side of the North Sea than on the UK side,” Hege Kverneland, the Chief Technology Officer at National Oilwell Varco said.

“It’s hard to understand and when you see this from the outside, you start to wonder if they are completely mad,” she added.

Norway is a victim of its own success. While Europe’s economies sank into recession, it recorded 5 percent annual growth in the second quarter. It has no debt, no budget deficit and amassed $600 billion — $120,000 for each of its 5 million people — from its oil money in a wealth fund.

The country is importing as many workers as it can, which has pushed housing prices to new records, giving households rare confidence and spending power. The oil sector, which accounts for a fifth of the country’s $480 billion gross domestic product, will employ basically as many people as it can find.

Oil workers are not alone with high demands. Airport workers, teachers and public sector employees all went on strike this year, wanting a bigger share of Norway’s economic success.


The oil and gas sector’s output has been declining steadily since a peak in 2004 and oil majors have all but given up on Norway’s exploration scene until a string of major discoveries and the opening of Arctic waters revived hopes.

The average oil worker makes $180,300 a year, the highest anywhere in the world, recruiting firm Hays said in a report. That’s $93,000 more than a similar UK worker makes and above the $177,000 pay for the average U.S. CEO.

The August strike, eventually broken up by the government when oil firm threatened a full lockout, will only push this figure higher even as labour costs have increased by 51 percent since 2005.

“Some of the things that are happening in Norway are making it less competitive than where it was one week, two weeks or just a month ago with respect to investments and we look at that,” ConocoPhillips CEO Ryan Lance said.

“It’s still an attractive place to make investments but it is getting less attractive as these things happen.”

Ironically, competition from a far away place like Australia, could push Norwegian wages even further, said Mark Guest, the managing director of

“Australia is just a very attractive place with an incredible demand for (energy sector) labour,” he said. “Wages are coming up and catching up to Norway. This competition will force Norwegian wages even higher.”

Labour costs can be as high as half of the overall cost in the initial, construction phase of a project, like in the case of Chevron’s massive $37 billion Gorgon LNG project in Australia. Labour costs, however, decline sharply once assets begin producing.

The oil ministry, alarmed by risings costs, recently proposed cutting the downtime for Norwegian offshore workers, who get four weeks of rest for every two weeks at sea while their UK counterparts either work in a two-week/two-week or two-week/three-week rotation.

“If the oil companies continue to demand an equalization between the British and Norwegian sectors then we might be heading for a future full of conflict,” Leif Sande, leader of the Industri Energi union said. “To change work-schedules for offshore workers because of competitiveness issues is out of the question.”

The oil ministry estimates that just personnel costs on a rig are up to $75,000 higher per day on the Norwegian side of the North Sea.

“There is a supply/demand issue when it comes to services, people, resources, so there is a genuine shortage of rigs, competent people, and when there is a shortage, the asking price will increase,” said Tim Dodson, Statoil’s head of exploration said.

“The people costs and efficiency things become more and more important as the challenges increase and the margins go down.”

Information firm ISH, which maintains upstream capital and operating cost indexes, recently estimated that costs in the sector are at or near record highs after a dip in recent years.

But Norway is still far from the edge and some of the challenges it faces are not unique to it, experts add.

“Norway has a lot of good things going for it,” said Malcolm Dickson, an analyst at WoodMac said. “It’s stable fiscally and politically. And the government takes on much of the exploration risk by refunding exploration costs, and taxing once production starts.”

The country’s regulatory and tax regime is known for stability, a major advantage at a time when countries from Australia to Nigeria tweak their rules to grab a bigger piece of the pie.

Still, as output falls and costs rise, margin pressures are inevitable and labour costs are bound to become a bigger headache.

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