A decline in oil and gas prices is the main reason why net cash flow was down 35 per cent from the third quarter of 2013 to the same period this year from the State’s Direct Financial Interest (SDFI) on the Norwegian continental shelf (NCS). Petoro chief executive Grethe Moen says that the fall in oil prices emphasises the importance of improving cost efficiency in order to strengthen projects on the NCS in the global competition for investment capital.
Moen acknowledges that investment in mature fields is often by its nature commercially marginal, and that many will be unprofitable without cost reductions. “We can’t influence oil prices,” she points out. “What we can
do is strengthen the profitability of our projects and the rest of the business. That calls for a long-term and continuous commitment to improve the productivity and efficiency of everything we do. Our ambition for production drilling, for example, should be to halve costs and double the number of wells from fixed installations.”
She notes an increased reality orientation in the industry and a greater willingness to do something about costs. “That reinforces my optimism. It will nevertheless still take time and considerable effort to enhance cost efficiency in our industry. I believe, however, that the Norwegian culture of collaboration means we have the best preconditions for overcoming these global issues facing the petroleum sector and issues which relate specifically to the NCS.”
As an example of the importance of strengthening the profitability of projects, Moen points to the important decision due in the first quarter of 2015 to take the Snorre 2040 project on to a final investment decision in 2016. “Thorough work in the partnership shows that Snorre has a large potential for supplementary reserves, and for further cost optimisation. But the value of new investment of this kind will by its nature decline over time, and it is thereby important that we now stick to the timetable.”
Net cash flow to the government from the SDFI was NOK 19.5 billion in the third quarter, compared with NOK 30 billion in the same period of last year. This decline reflects a reduced volume of gas sales and lower oil and gas prices. Net cash flow was NOK 83.3 billion for the first nine months, down by NOK 14.5 billion from the same period of 2013. That reduction primarily reflects lower sales volumes and prices for gas as well as higher investment than in the first nine months of last year.
Income after financial items for the third quarter was NOK 24.8 billion, a reduction of approximately 15 per cent from the same period of 2013. The corresponding figure for the first nine months was NOK 88.4 billion, compared with NOK 95.7 billion for the same period of last year.
Total oil and gas production in the third quarter averaged 849 000 barrels of oil equivalent per day (boe/d), 10.8 per cent lower than in the third quarter of 2013. Liquid output rose somewhat but gas production fell by roughly 20 per cent, primarily because a proportion of gas production has been deferred to enhance its value.
Production regularity was still good per third quarter. Total oil and gas production for the first nine months averaged 950 000 boe/d, compared with 1 022 000 boe/d in the same period of 2013.
For more information on financial and operational results, see the interim directors’ report.
Head of communications, Petoro AS
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