Marathon Exec: Norway Alvheim Oil Seen in 4Q

OSLO Oct. 10, 2007 (Dow Jones Newswires)

Marathon Oil Corp. (MRO) expects its delayed 120,000 barrels a day Alvheim oil development to start up this quarter and is focused on the commissioning of the project's floating production, storage and offtake unit, or FPSO, a company executive told Dow Jones Newswires.

"The goal is to have Alvheim onstream in the fourth quarter. Construction of the virtually complete," said Marathon Norway's Commercial Manager Kristin Faerovik. "All the subsea infrastructure is in place and three production wells have already been drilled."

Oil from Alvheim, the largest oil development in Norway, and one Marathon considers "material" in its global production portfolio, will be shipped by shuttle tanker to Western Europe. Around 50 cubic feet a day of associated gas will be piped via the U.K.'s SAGE gas system to St. Fergus, Scotland for sale on the U.K. spot market.

Alvheim was due online in the first quarter of 2007, but was pushed back to the end of the second quarter, delayed by tight oil services and personnel markets. The ongoing delay means the FPSO vessel is being taken offshore in winter conditions, so there could be a longer wait for an appropriate weather window, Faerovik said.

The more than six-month setback had raised project costs, which were originally slated at $1.2 billion, she said. "Obviously there's a link between time and cost, but I can't put a figure on it. There have been some pressures and the work on the FPSO has coincided with a period of labor and skills shortage."

Alvheim, which comprises the Kneler, Boa and Kameleon fields and nearby satellite fields Volund and Vilje which will be linked in, could become even larger if Marathon's drilling program in the area is successful, Faerovik said.

"There's more prospectivity there and any discoveries can be tied back to Alvheim so they don't have to be that big," she said. "We've got four licenses in that area, with production license 340 in addition to the three Alvheim license."

Vilje, which was due on in mid-2007 according to Marathon's earlier estimates, is set to "come onstream as soon as operationally feasible", Faerovik said, while work on Volund is also underway.

The company has secured rig capacity for production drilling at Vilje and Volund, and said that while there's been a "step-change" in prices due to a global squeeze for rigs since it first looked at Volund, "these are still very robust projects."

Tightness in oil services markets continues to put the brakes on Marathon's drilling program however. While the company has a firm rig slot for a well in production license 340, Faerovik said Marathon wants "to accelerate the drilling program in the area, to drill as soon as possible" when it gets additional rig capacity.

Busy with Alvheim, Marathon has taken a back seat in Norway's 2007 awards in predefined areas, or APA, oil and gas license round which was introduced in 2003 to encourage exploration in more mature areas of the continental shelf.

"The timing wasn't right. We looked at a number of opportunities, but both the subsurface risk and our commercial assessment has to be a fit," Faerovik said. Marathon is more interested in the opportunities available in Norway's 20th licensing round in which new areas will be offered, she said. "We're already working on (that) round where we expect to find attractive opportunities.

"We definitely see Norway as an interesting place to explore. Exploration refunds are obviously an incentive," Faerovik said of Norway's policy of refunding 78% of the cost of unsuccessful exploration.

The company intends to look more closely at opportunities in Norway's Barents Sea, and already has a stake there in production license 438, where seismic surveys will soon be conducted.

Elsewhere, Faerovik said there are now "very firm plans" to move the high-pressure, high-temperatures Peik prospect forward towards a plan for development and operation, or PDO for submission to the authorities in early 2009. It also has a stake in the Bjorn prospect in the North Sea, where it plans to drill exploration wells in November or December of this year.

Marathon is also considering acquisitions in order to grow its business in Norway. "Obviously it's very challenging in today's market with high commodity prices. As with most companies of our size, we're always looking for growth opportunities. We've got a solid base to grow from, a long-term asset base in Alvheim," Faerovik said.

The company owns 65% of Alvheim, while ConocoPhillips (COP) has 20% and Lundin Petroleum (LUPE.SK) 15%.

Copyright (c) 2007 Dow Jones & Company, Inc.


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