OSLO - Oil services companies are confident they can keep pace with the boom in Norway despite record-high demand for their work, said Boston Consulting Group Inc. in a government-commissioned report published Wednesday.
But they see the rising costs of doing business in the Nordic country, especially wage growth, as a threat to the sector's ability to stay competitive, the BCG report said.
BCG was hired to review whether Norway's oil services industry would be able to meet demand toward the end of the decade. Investments are expected to reach a record-high NOK204 billion ($36 billion) in 2013 and remain high for years.
Of 31 oil services companies interviewed by BCG, 66% said that they are "comfortable" or "very comfortable" about their the capacity to handle growing demand, even though 73% admitted they were worried about a shortage of qualified engineers.
"It's good that the industry itself believes it has and will build enough capacity to supply a high level of activity both in Norway and globally," said the country's oil minister, Ola Borten Moe.
Norway expects investment and maintenance costs offshore Norway to increase 17% in 2012, and then 3.4% annually until 2016, raising concerns that projects could be delayed by supplier industry constraints.
Recent examples of delayed projects include the BP Plc operated Skarv field and the Talisman Energy Inc. operated Yme field.
The government estimates the Skarv investments at NOK47.1 billion, a 32.4% cost override, and Yme investments at NOK14.1 billion, 188% more than the original estimate from 2007.
The 24 offshore oil and gas projects under development in Norway are expected to cost NOK391.9 billion, 14.4% more than the original estimates, according to the 2013 government budget.
The report warned that in operating at high capacity while trying to build more rigs, companies may have a tough time dealing with any changes to projects or additional construction needs. This could delay projects and increase costs.
In 2011, Norway-based oil services companies made 42% of their revenues outside of Norway, according to the oil analyst firm Rystad Energy. Key oil suppliers in Norway include internationals such as Halliburton Co., Baker Hughes Inc. and Schlumberger Ltd., and Norwegian companies such as Aker Solutions ASA, National Oilwell Varco Inc., Subsea 7 S.A., IKM, Reinertsen and Bergen Group.
"The review by Boston Consulting Group shows that international capacity is built in addition to, not at the expense of, capacity in Norway," said Mr. Moe.
Copyright (c) 2012 Dow Jones & Company, Inc.
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