Norway Industry Likely to Drill 40-45 Wells in 2008

STAVANGER (Dow Jones Newswires), August 26, 2008

The head of Norway's oil industry association, or OLF, said the level of oil and gas investment in Norway has entered a new phase, peaking at around NOK 100 billion a year for an unusually sustained period, supporting "very high activity."

Per Terje Vold, chief of OLF, told Dow Jones: "There is very active business going on across the whole Norwegian continental shelf. Gross investment including exploration expenditures are well above NOK100 billion (%18.4 billion) a year. It increased to that in 2006, and has stayed around that level in 2007 and in 2008."

In an interview at Norway's giant biennial oil and gas conference, Offshore Northern Sea, Vold said investment projections for 2009-2010 are "above NOK100 billion. That indicates a new pattern in Norway." He said investment peaks have happened before, but have traditionally fallen back after one or two years.

"It's a new thing that we've reached this peak and there seems to be a process of flattening out at that level."

Market watchers have charted the soaring cost of rigs, oil services and wages in the industry, as demand outstrips supply amid high activity levels. The surge is primarily the result of a sustained period of oil prices at well above $100 a barrel. Companies are more inclined to exploit marginal resources around existing fields, and push further into frontier regions while high returns justify record-high exploration and production costs.

Vold questioned how long record investments can be sustained, but said much of the increase is underpinned by a surge in exploration.

"Estimates today indicate 40 to 45 wells will be drilled in Norway in 2008, including wildcat and appraisal wells," he said. That compares with just 15 in 2004.

Vold ceded that it's very difficult to tell how much of the cost increase is the result of inflationary pressures as opposed simply to higher activity, but the OLF is "working very hard" to separate the contributions of the two factors.

"Activity is so high that it's difficult to work out a market price for different types of oil services. It's more a question of whether companies get a contract or not," he said, adding that "it's obvious there is a price element" in the increased spending.

Norway's oil output is declining but its gas output continues to climb, meaning that by 2012-2013, the country will produce more gas than oil, 40 years after hydrocarbons were first discovered offshore, Vold said.

The newest figures from the Norwegian Petroleum Directorate show Norway was the world's fifth-largest oil exporter in 2007 and third-largest gas exporter in 2006.

"Norway will turn more into a gas supplier. We have the capacity to increase gas output. Increasing gas exports to Europe is an important contribution to the carbon dioxide debate...the more gas-powered electricity, the less dirty coal-powered stations there are," Vold noted.

The OLF represents the interests of its more than 100 members, which include oil producers ConocoPhillips, Exxon Mobil, Total, StatoilHydro ASA and oil services companies Halliburton and Schlumberger.

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

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