Petoro pressing to keep profitable projects on track

SDFI in the nine months of 2009: NOK 77.5 billion
Even with relatively high crude prices over the past six months – averaging USD 68 per barrel in the third quarter – a number of oil companies on the Norwegian continental shelf are affected by great uncertainty and strict capital discipline.
A review of licences in which Petoro has holdings show that many developments are failing to keep to agreed timetables. The company is concerned that such delays could reduce long-term value creation, and aims to push for progress in profitable projects.
Income after financial items for the State’s Direct Financial Interest (SDFI) on the Norwegian continental shelf totalled NOK 75.2 million for the first nine months of 2009. That was down 34 per cent from the same period of 2008, which was a record year. Net cash flow to the government from the SDFI was NOK 77.5 billion for the first nine months and NOK 20.4 billion for the third quarter.

Daily production of oil and gas averaged 1 068 000 barrels of oil equivalent at 30 September. Gas output was up five per cent from last year, while production of oil and natural gas liquids fell by 10 per cent. Operating income for the first nine months was NOK 117.2 billion, compared with NOK 156.4 billion in the same period of last year.

Petoro has been pointing for the past year to the danger that market uncertainty might encourage short-term thinking by a number of operators. The company has noted that profitable projects are falling behind their approved schedules, in part because of stricter prioritisation of capital spending on the NCS. Delays could lead to a loss of business opportunities down the road and reduce value creation. It could also cut capacity and expertise in the supplies industry, threatening a new cost explosion when activity recovers. As the largest partner on the NCS, Petoro will press to ensure progress in profitable projects.

The justifications for delay can be complex, comments Kjell Pedersen, president and CEO of Petoro. They are often based on assessments of oil price uncertainties and the need for greater financial flexibility, achieved most easily by slowing investment. While acknowledging that such thinking could be appropriate for the individual oil company on the basis of its overall portfolio, Mr Pedersen believes that the total effect could be wrong for the NCS and the industry in Norway.

He points in this context to Statoil. “We’ve previously called attention to the special challenges posed by establishing such a dominant player. With the exception of exploration activity, the NCS is wholly dependent on the priorities determined by Statoil. Such a position creates many expectations. When Statoil sets particularly strict priorities for its capital spending, we expect profitable projects on the NCS to be given sufficient precedence and vigorously executed by comparison with other opportunities.”

Contact:
Sveinung Sletten, vice president external affairs, Petoro AS
Office phone: +47 51 50 20 24
Mobile: +47 95 07 55 54

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