Statoil’s Arctic Status Threatened as Exxon, Shell Make Bids

Bloomberg.com 

By Vibeke Laroi and Marianne Stigset

April 22 (Bloomberg) — StatoilHydro ASAmay see its dominance eroded in Norway’s Arctic as Exxon Mobil Corp. and Royal Dutch Shell Plc bid in the country’s first frontier oil and natural-gas licensing round for three years.

Norway has offered 28 complete and partial blocks in the Barents Sea off its northern tip and 51 in the Norwegian Sea, which straddles the Arctic Circle. The permits will be awarded “sometime in the spring,” said Jon Evang, an Oil Ministry spokesman, without being more specific.

State-controlled StatoilHydro is the only producer in the Barents Sea, with the Snohvit gas field. It’s also planning to develop the nearby Goliat oilfield with Italy’s Eni SpA for $4 billion. Exxon, Chevron Corp. and Shell are among the 46 companies to request blocks, almost twice as many as in 2006.

“Statoil will have the most to lose,” said Oswald Clint, an analyst at Sanford C. Bernstein in London. “If it doesn’t find big enough discoveries, then they have to say: ‘Look, we have to shift focus and start exploring internationally.’ In that arena they’re competing with everyone else.”

StatoilHydro’s stock has lost 32 percent in the past year as profit declined for two quarters, partly because of oil’s $100 a barrel plunge from a record. It has canceled projects including an upgrade at the Troll gas field and sold the equivalent of $6.2 billion in bonds to raise funds.

Increased Competition

Chief Executive Officer Helge Lund’s overseas expansion plans have been slowed by a tripling of costs to develop Canadian oil-sands projects, and U.S. sanctions against Iran. It gets about 40 percent of its international output from Angola, which has had to curb production to meet OPEC quotas. StatoilHydro’s reserve replacement ratio fell to 34 percent last year from 86 percent in 2007.

“We’re used to having competition, but the picture on the Norwegian continental shelf has changed,” Ola Morten Aanestad, a company spokesman, said by phone. “Before we had a few big companies, and now we’re seeing many very small companies.”

Smaller explorers, including Det Norske Oljeselskap ASA, North Energy AS and Discover Petroleum AS, are also seeking access to the area where five discoveries were made in 2007 and 2008, including StatoilHydro’s Nucula field.

Norway first awarded drilling rights in 1965 and ranks as the world’s third-largest gas and fifth-largest oil exporter. The government takes a 100,000 kroner ($15,000) application fee for licenses, which are handed out according to technical expertise, experience and financial ability. They are mostly given to ventures where at least one partner has drilled as an operator previously.

Estimated Resources

The country’s Barents Sea may hold 1.03 billion cubic meters of oil equivalent in undiscovered oil and gas. About 53 percent is gas, equal to about five times Norway’s annual output. The Norwegian Sea has 1.20 billion cubic meters of oil equivalent in undiscovered resources and the North Sea 1.18 billion, according to the country’s Petroleum Directorate.

About 25 percent of the recoverable resources on Norway’s continental shelf have yet to be discovered and only about 50 percent is open for exploration, according to the directorate.

Terje Jonassen, a spokesman for Shell in Norway, and Exxon spokesman Eirik Hauge declined to comment. StatoilHydro has applied for blocks in all areas, said Geir Richardsen, the company’s head of far-north exploration.

Shell was awarded operatorship of one license in the previous round, though it hasn’t started drilling yet. Chevron also won a stake in 2006.

‘Geologically Similar’

“The golden blocks for us lie between Nucula and Goliat in the Barents Sea, because they are geologically similar to the discoveries made there,” said Yngve Vassmyr, a director at Tromsoe, Norway-based Discover Petroleum. “We see a 40 percent to 50 percent chance of making a discovery. There’s a lot of competition.”

Repsol YPF SA, Spain’s largest oil company, agreed in March to work with Det Norske Oljeselskap ASA on projects in the Barents Sea and has also bid in the round.

Norway’s push is similar to efforts around the world to tap the Arctic. The U.S. Geological Survey said last year that the region may hold 90 billion barrels of oil, more than all the known reserves of Nigeria, Kazakhstan and Mexico combined. Russia’s Arctic Shtokman gas project is estimated to hold enough gas to meet world demand for a year.

Environmental Opposition

Still, the projects are riskier and costlier, and also opposed by environmental groups. In Norway, Kristin Halvorsen, finance minister and head of the Socialist Left Party, has vowed to fight further expansion of Arctic drilling.

Discoveries in Norway last year varied in size between 1 million and 26 million cubic meters of oil equivalent, according to the Petroleum Directorate. More finds will be needed to make fields commercially viable, said Erik Karlstroem, chief executive officer of North Energy.

“The greatest expectations for making a significant discovery on the Norwegian shelf are in areas that are not part of the 20th licensing round and are not yet open,” said Lars- Arne Ryssdal at the Norwegian Oil Industry Association, referring to areas of Lofoten and Vesteraalen.

To contact the reporters responsible for this story: Vibeke Laroi in Oslo at[email protected]; Marianne Stigset in Oslo at [email protected]

Last Updated: April 21, 2009 18:00 EDT 

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