BP Norway Oil to Double By 2012, to Spend $900MM in 2009

Valhall Field, North Sea
(Click to Enlarge)

STAVANGER (Dow Jones Newswires), August 25, 2008

U.K. oil major BP is ramping up its activity in Norway, bucking a trend at other oil majors to consolidate and scale down in maturing oil and gas basins like Norway and the U.K.

Trevor Garlick, who's just taken over as managing director of BP's Norway operations, told Dow Jones Newswires the company's planning a record Norwegian annual investment in 2009 of $900 million, helping double its current oil and gas production there to 80,000 barrels a day by 2012.

"The rocks are here for significant investment," Garlick told Dow Jones Newswires in an interview. "The barrels are here, we've got significant infrastructure and a very competent workforce, so we see many projects to come," he said. BP's planned 2009 expenditure compares to just $200 million in 2006.

The company is concentrating its resources and exploration drilling on three hubs: Valhall, Skarv and Ula. Valhall and Ula fields already produce oil and gas, while Skarv is a completely new development which is due 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," Garlick said.

The company hopes to make new finds and liaise with other operators around its existing Norwegian processing and export centers, with a view to tying back more production. An example of this approach is already in action at Ula, which processes oil from BP's own Tambar and Tambar East fields, as well as from the Talisman Energy Inc. Blane field which came onstream in September 2007.

The lifespan of Valhall will stretch out to 2049 once a new 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 so-called "air-gap" or space between the sea and the platform topside, making them more vulnerable to the biggest winter waves.

"Subsidence remains a concern, but we managed operations safely through last winter," 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, making Valhall's carbon dioxide and NOX emissions close to zero from 2010.

At new development, Skarv, BP is partnering with E.ON Ruhrgas AG and Poland's PGNIG, which bought their stakes from Royal Dutch Shell and Exxon Mobil respectively. "They're new sets of eyes, bringing fresh ideas from a midstream perspective," Garlick said.

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

Norway's authorities have provided a range of incentives to newcomers, including recycling oil and gas blocks in the predefined areas licensing round. Additionally, the country returns a large proportion of the costs of unsuccessful exploration.

Garlick said BP's biggest challenge in Norway is that the supply of energy services, raw materials and personnel does not 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," Garlick said.

BP believes that 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. 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," he said.

"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," Garlick added.

Those restraints aren't stopping BP's progress in Norway though, he said. "I can see us committing more and more here," he 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," Garlick said.

Copyright (c) 2008 Dow Jones & Company, Inc.

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