Norsk Hydro Writes Down Value of Front Runner Field
Following the previously-announced review of Hydro's US Gulf of Mexico main assets, Hydro will write down the value of the Front Runner field by US $462 million after tax to its fair value based on a lower production profile and higher development costs than expected.
The impairment of Front Runner amounts to US $710 million before tax, of which US $58 million is related to in-field prospects and will be charged to exploration expense in the fourth quarter 2006. The remaining book value of Front Runner will be US $201 million.
Hydro has ownership interest in about 40 producing fields on the GoM Shelf, some producing above and some below expectations. Following impairment tests, Hydro will also write down the value of 10 Shelf fields with US $87 million after tax, which corresponds to US $134 million before tax.
Hydro's proved reserves in GoM will be reduced by approximately 7 million barrels of oil equivalents (boe) as of December 31, 2006. This represents less than 0.4 percent of Hydro's total reserves of more than 2 billion boe reported to the US Securities and Exchange Commission per December 31, 2005.
Hydro maintains its overall company production target for 2007 of 605,000 barrels of oil equivalents per day (boed).
"Although Front Runner has been a disappointment so far, we remain confident that the Gulf of Mexico with our significant exploration assets will continue to be an important core area in our international portfolio," says Eivind Reiten, Hydro's President and Chief Executive Officer.
Hydro obtained a 25-percent interest in the Front Runner field through the acquisition of Spinnaker Exploration in 2005, which included several high-quality development projects as well as significant exploration acreage – both deepwater and Shelf prospects.
Front Runner's performance was weaker than expected during 2006, with several wells collapsing and being shut down. As announced in connection with the third-quarter 2006 results, the development prompted Hydro to initiate an extensive review of the field.
The review concludes that the geology of Front Runner is more complex and reservoir communication weaker than expected at the time of the acquisition. Expected recoverable reserves from Front Runner are reduced by 56 percent compared with Hydro's initial valuation of the field due to lowered expected volumes of oil in place, reduced expected recovery rates and increased field development costs.
Hydro and Statoil announced on December 18, 2006 an agreement between the Board of Directors of the two companies to merge Hydro's oil and gas activities with Statoil. The companies have now completed a value verification process. Details about the process are announced today in separate news releases from Hydro and Statoil.
Operates 1 Offshore Rigs
- Sentry Petroleum Appoints Former Norsk Hydro Analyst to Board of Directors (Dec 29)
- Hydro Under Investigation for Former Libya Oil Operations (Oct 07)
- SeaBird First Contract Award for SeaBed Operations (Apr 28)