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[07.08.2014] - Press release SDFI second quarter 2014

Investment remains high

The high level of investment in the Norwegian state’s own oil and gas portfolio continued in the second quarter of 2014. Petoro has not registered any reduction in operating costs during the first half of the year. Grethe Moen, the company’s chief executive, says that greater efficiency and lower costs are important for realising the future value of the state’s oil and gas holdings.
An independent external valuation during the second quarter shows that the State’s Direct Financial Interest (SDFI) on the Norwegian continental shelf (NCS) was worth NOK 1 234 billion at 1 January this year. The valuation was carried out for the Ministry of Petroleum and Energy by Rystad Energy. Moen says that the report’s projections for investment, income and operating costs in the SDFI portfolio indicate a long-term potential for contributing substantial value to the state. She is moreover gratified that Rystad’s report recognises Petoro’s contribution to added value from the SDFI, and the job done by the company.
  
Petoro’s interim report for the first half and second quarter of 2014 shows that the high level of capital spending established in the second quarter of 2013 was maintained. SDFI investment up to 30 June totalled NOK 19.1 billion, a 20 per cent increase from the first half of 2013. It rose by about six per cent in the second quarter compared with April-June last year to reach NOK 9.5 billion.
  
Moen uses drilling of production wells to illustrate the challenges presented by the high level of costs, which underlies the investment increase. “Production drilling represents more than 40 per cent of investment in the SDFI and is crucial for recovering the state’s petroleum in both existing fields and new discoveries. To realise these big assets, I believe the cost of drilling a well must be halved and the number of wells drilled per year from the fixed platforms doubled.”
  
At 30 June, however, drilling plans on big and important fields in the SDFI portfolio lay far behind schedule. At the same time, Petoro sees specific examples on some fields that Statoil’s initiative to improve drilling efficiency is bearing fruit. “This is promising, but it’s too early to conclude that these efforts will produce long-term and adequate improvement,” says Moen.
  
A number of fields were shut down in the second quarter for planned maintenance. Combined with a fall in gas output, this was the principal reason for a 10 per cent decline in average oil and gas production from the second quarter of 2013 to 894 000 barrels of oil equivalent per day (boe/d) in April-June this year. Production in the first half averaged one million boe/d, compared with 1.06 million in the same period of 2013.
  
While regularity in the first three months of this year was high, reduced production owing to planned offshore maintenance meant that it was lower in the second quarter. If planned maintenance is disregarded, however, regularity also remained high in April-June.
  
Operating income for the first half was NOK 93.3 billion, compared with NOK 97.4 billion in the same period of 2013.
  
Price developments in the first half of 2014 for both oil and gas showed a small increase from the same period of last year. But oil and gas prices moved in different directions during the second quarter. The oil price in Norwegian kroner rose by more than 10 per cent to NOK 667 per barrel, while the gas price dropped almost 10 per cent from the second quarter of 2013 to an average of NOK 2.06 per cubic metre this year.
  
As a result of the factors mentioned above, cash flow to the government declined by six per cent in the first half, compared with the same period of 2013 to NOK 63.7 billion. Net cash flow in the second quarter came to NOK 24.8 billion, about 19 per cent lower than in the same period of last year.
  
Where commercial milestones are concerned, Moen sees it as important that work on a development solution for Johan Castberg up to the summer of 2015 will be based on a balanced maturing of alternative concepts. “The development solution for this discovery will be a key element in creating an infrastructure which can contribute to greater flexibility and additional profitable developments in the Barents Sea,” she notes.
 
For more information on financial and operational results, see the interim directors’ report.
 
Further information from
Sveinung Sletten
Head of communications, Petoro AS
+47 950 75 554
+47 51 50 20 24
sveinung.sletten@petoro.no

 
Publishing date: 07-08-2014