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BP to Increase Energy Output in Norway

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BP to Increase Energy Output in Norway

August 27, 2008; Page B7A

BP PLC is increasing its activity in Norway, bucking a trend at other major oil companies to consolidate and scale down in maturing oil and natural-gas basins.

Trevor Garlick, managing director of BP’s Norway operations, said in an interview that the company plans a record Norwegian annual investment of $900 million in 2009, helping double BP’s current oil-and-gas production there to 80,000 barrels a day by 2012. BP invested $200 million in Norway in 2006.

“The rocks are here for significant investment,” Mr. Garlick said.

“We’ve got significant infrastructure and a very competent work force, so we see many projects to come,” he added.

The company is concentrating its resources and exploration drilling on three hubs: Valhall, Skarv and Ula. The Valhall and Ula fields already produce oil and gas, while Skarv is a new development that is to start producing in 2010.

“We’ve pulled together a five-year plan round each hub, and are ramping up in activity. We’re starting to see very long horizons for each of the areas,” Mr. Garlick said.

The company hopes to make new finds and work with other operators around its existing Norwegian processing and export centers. Ula already processes oil from BP’s own Tambar and Tambar East fields, as well as from the Talisman EnergyInc. Blane field that came onstream in September 2007.

Valhall’s lifespan will extend to 2049 once a field center has been built by 2010. The redevelopment project addresses the problem of seabed and field-infrastructure subsidence, which has resulted in platform evacuations and production shutdowns. Sinking platforms have reduced the air gap, or space between the sea and the platform topside, making them more vulnerable to the biggest waves.

“Subsidence remains a concern, but we managed operations safely through last winter,” Mr. Garlick said. “We have trained our crews and practiced safe evacuations as a precaution. Whilst safe operation is the priority, there was also minimal production loss last winter due to weather.” The new field center will receive clean hydroelectric-generated power from shore via a 292-kilometer pipeline from Lista, Norway, making Valhall’s carbon-dioxide emissions close to zero starting in 2010.

At Skarv, BP is partnering with E.ON Ruhrgas AG of Germany and PGNiG SA of Poland. E.ON Ruhrgas and PGNiG bought their stakes from Royal Dutch Shell PLC and Exxon Mobil Corp., respectively. “They’re new sets of eyes, bringing fresh ideas from a midstream perspective,” Mr. Garlick said.

The stakeholder shift at Skarv illustrates the changing profile of Norwegian oil and gas companies. Major competitors are searching for bigger spoils elsewhere, freeing up stakes for midstream companies with downstream customers to supply, or small and start-up oil companies for whom smaller stakes are still material.

Norway provides a range of incentives to newcomers to the sector, such as returning a large proportion of the costs of unsuccessful exploration.

Mr. Garlick said BP’s biggest challenge in Norway is that the supply of energy services, raw materials and personnel doesn’t keep pace with demand.

“We, like everyone else, are trying to work with our suppliers, get a little bit ahead. We’ve got different strategies for different sectors, but are trying to sort out our planning, and integration of all our projects so we can go earlier to the supply chain,” Mr. Garlick said.

BP says current conditions suggest that oil prices will stay relatively high for the foreseeable future. “That’s having a huge impact on the activity that everyone’s trying to do,” Mr. Garlick said. “What we’re seeing is that it’s putting an onus on us to plan and integrate our planning, think about relationships with the supply chain a lot more.”

“Resources in its largest sense, whether people, drilling rigs or tubulars, is a very big issue for everybody. And because of the competition, the price is going up all the time. There are two issues, one to secure the supply and the other that things are costing more,” Mr. Garlick added.

BP is likely to commit more resources to Norway, Mr. Garlick said. “We will, I hope, have a couple more projects to bring to our joint ventures on Valhall and Ula…and further drilling and gas lift to extend recovery,” he said.

Write to Elizabeth Cowley at [email protected]

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