Marathon: Alvheim Output Due 1Q07

OSLO, Nov 10, 2006 (Dow Jones Newswires)

Marathon Norway has weathered a competitive and challenging period since its 2001 decision to enter the Norwegian continental shelf as an active player to begin producing at its first field as operator in early 2007, managing director Roger Wilson has told Dow Jones.

Marathon's Alvheim development will start up in the first quarter of 2007, with a plateau production of around 120,000 barrels of oil equivalent a day, boosting the firm's output in the region significantly, and enabling tie-in of nearby discoveries in line with its development strategy, said Wilson.

He noted that since the company's decision to have an active interest in the NCS in 2001-2002, the oil sector has altered significantly.

"Quite a bit has changed since we embarked on Alvheim," Wilson said. "Oil prices have risen from $30 a barrel to $60 a barrel, and competition has turned up. There are a significant number of new companies at the pre-qualification stage, and others in the pipeline," he said.

"In terms of transactions, there is limited acquisition potential," and, along with the rest of the global oil sector, companies face soaring rig rates. Typical daily hire costs have lifted to $420,000 a day from $150,000 less than five years ago, Wilson said.

Human resources, and suppliers, are hard to come by, which means "project economics have been challenged by the new cost structure," he added.

"We don't see that cost is going to soften, demand will continue to be greater than supply," Wilson predicted, adding, "but one benefit of high costs is that the supply industry has the money to invest, so there are new rigs."

Marathon aims to be recognized as a leading operator in Norway, but Wilson ceded that the company has not had recent success in picking up new exploration turf in the previous two Norwegian pre-defined license rounds.

It is hopeful of picking up more prospects during the coming round, with results expected around the end of the year.

In the meantime, it is focusing on bringing Alvheim, the largest current oil development on the NCS, onstream, Wilson said.

Oil and gas production from the $1.2 billion project will flow through a sub-sea tieback to a floating production storage and offtake unit, currently being completed in dry dock. From there it will be offloaded to shuttle tankers and taken to the most attractive markets, while small quantities of gas will be exported to the U.K. via the SAGE transport system, Wilson said.

He could not specify precise gas volumes at this stage, but said they would increase through the field's life. "Gas value is at the end of the field," he said.

Alvheim comprises the Kneler, Boa and Kameleon fields and together with nearly discovery Vilje which is due onstream in mid 2007, has a recoverable reserves base of between 200-250 million barrels of oil equivalent. Marathon owns a 65% operating stake in the asset, ConocoPhillips 20% and Lundin Norway 15%.

"We want to maximize all the potential prospects in the Alvheim area, to keep the FPSO vessel full and use the infrastructure," Wilson said. The nearby South Kneler, South Gekko and Marihone prospect, which Marathon intends to drill in 2008 pending rig availability, could all help sustain output from the area.

"We're still active in exploration," Wilson stressed. The firm expects to drill exploration wells in the Norwegian North Sea in May-June next year at the Bjorn prospect. "We'd like to see some (new) areas opened up by the government for exploration to give more opportunities," Wilson said.

Marathon has also submitted a plan of development, or PoD, for its geologically challenging Volund development to the Norwegian Petroleum Directorate for approval, which it hopes to gain by the year end. First oil is targeted for 2009 and will be tied to back to Alvheim.

Elsewhere on the NCS, Marathon has a 28.2% stake in Gudrun, which is currently going into the development phase with production forecast to come online in 2010. Oil could be tied back into Marathon's U.K. Brae field, Wilson said. It also owns a 50% non-operating stake in Peik, a high-pressure high temperature cross-border field between the U.K. and Norway.

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