Oil company Lundin Petroleum announced a huge new oil and gas discovery in the Barents Sea on Tuesday that renewed hopes for the oil industry and the economy of Northern Norway. The discovery comes just as many companies have been cutting jobs because of low oil and gas prices and earlier drilling disappointments.
“This is a brilliant day,” Sissel Eriksen, director exploration for Norway’s petroleum directorate, told Norwegian Broadcasting (NRK).
Lundin is in the process of completing its drilling program northwest of the Snow White field on the Alta Prospect about 190 kilometers northwest of the northern city of Hammerfest, and believes it has struck large quantities of recoverable oil and gas. They could yield the equivalent of as much as 310 million barrels of oil.
The discovery is said to be larger than the oil and gas found on the Goliat field and signals that there’s much more oil and gas available under the Arctic seabed off Northern Norway. Lundin President and CEO Ashley Heppenstall called the discovery “significant” because it’s “predominantly oil,” adding that the company was “very excited” about it.
Heppenstall noted that its production license area benefits from the Gulf Stream and is ice-free all year. He also noted that the discovery is “far from the maximum southern edge” of the polar ice. Environmentalists have been particularly worried about oil companies drilling in the northern Barents Sea and in areas they consider too close to the ice.
For the full press release with more details on the discovery click here (external link).
“This just shows that here there’s oil and gas in the Barents Sea, and that even more can be found,” Ken-Gøran Pedersen, chief engineer on board Lundin’s drilling rig Island Innovator, told NRK. He conceded there’d been disappointment that oil hadn’t been found earlier, “but now we see that there can be more.”
Both Pedersen and the crew on board Lundin’s rig have closely followed the downturn in the oil industry of late, now least because of falling oil prices that can make it unprofitable to extract oil and gas given high costs, especially in challenging areas such as the Arctic. The size of the new discovery may turn that around. Lundin shares ownership of the production license where the well is located with RWE Dea Norge As and Idemitsu Petroleum Norge AS.
Price pressure continues
Oil prices fell to a four-year low during the weekend, with a barrel of North Sea crude priced at USD 89 a barrel on Monday. That’s sharply down from the boom times in recent years when oil was selling for USD 140 a barrel.
If prices stay low, oil companies may put major Arctic projects in the Barents Sea literally on ice, including Johan Castberg and Goliat, according to analysts. Norway’s Statoil reported in July that “there wasn’t enough oil” in the Castberg field to justify the costs of building a pipeline to land and a terminal near Honningsvåg.
“Many of the most difficult areas depend on high prices, and many of them are in the far north,” said Erik Bruce, chief analyst at Nordea Markets. That in turn has dramatically lowered hopes for the mainland economy in areas like Hammerfest and Honningsvåg, which envisioned job creation from land-based oil industry support facilities.
Cost-cutting continues, too
The recent wave of job-cutting continued late last week when Statoil confirmed earlier media reports that it intends to cut another 500 jobs, bringing total job cuts and planned cuts to nearly 2,000. Labour organizations immediately protested, contending that Statoil is cutting too much and too early, but the company, Norway’s largest, claims it faces “a serious efficiency and cost challenge.”
The oil companies’ cutbacks in exploration and production are also being felt in the oil services sector, which has cut at least 5,000 jobs in recent months, mostly for engineers and offshore workers. State officials fear the number is much higher, since many companies aren’t publicly releasing the numbers of job cuts being made at their own firms.
Newspaper Dagens Næringsliv (DN) reported over the weekend, though, that many laid-off engineers are finding new jobs fairly quickly. “We’re grabbing the opportunity to do some hiring now when many good people are suddenly unemployed,” Kåre Stokkeland of Depro, which produces various solutions for the oil industry both in Norway and abroad. His company has registered tougher times in the oil industry “but it’s no crisis,” Stokkeland told DN. “The market is flattening out, but there are still lots of opportunities.” Lundin seemed to confirm that on Tuesday.