Statoil delays Arctic oilfield project, blaming falling incentives

Another Arctic oil project has been postponed with Statoil delaying the development of its Johan Castberg field in the Barents Sea. The oil major, majority-owned by the Norwegian government, said new tax increases announced last month had lessened the attractiveness of some projects.

The announcement is a big blow to the search for oil in the Arctic as the Norwegian Barents Sea is the one area where there has been drilling success.

Statoil executives say the Barents is considerably easier to operate in than Alaska or Greenland, where companies such as Royal Dutch Shell and Cairn Energy have spent billions of dollars with little or no progress.

Statoil yesterday blamed uncertainties both on the amount of resources and investment needed at Johan Castberg, formerly known as the Skrugard and Havis discoveries, and estimated to contain 400-600 million barrels of oil.

It had estimated it would cost about $15 billion to build a new oil hub on Norway’s north coast, deep in the Arctic Circle, to develop the field.

"The Norwegian government has recently proposed reduced uplift in the petroleum tax system," said Øystein Michelsen, head of Statoil development and production in Norway, "which reduces the attractiveness of future projects, particularly marginal fields and fields which require new infrastructure."

Norway itself is keen to stem a decade-long drop in oil production in the Nordic country with new finds in the Barents. However the lack of infrastructure in an area 1,500km from Oslo is a concern; Statoil had proposed an oil terminal at Veidnes, on Norway’s northern tip.

Because state aid was proposed to be used for the project, “significant uncertainty” had been introduced, Statoil said.

Statoil is the operator of Johan Castberg with a 50 per cent stake, Italy’s Eni has 30 per cent and Petoro, wholly owned by the Norwegian government, has 20 per cent. – Copyright The Financial Times Limited 2013