Statoil to Shut NCS Production


Statoil ASA (STO) has planned to shut down production on the Norwegian Continental Shelf (NCS) following a notice of lockout from the Norwegian Oil Industry Association (:OLF) on account of the ongoing labor dispute.

Statoil stated that the shutdown, effective from July 9, will result in a production loss of approximately 1.2 million barrels of oil equivalent per day, with revenue losses totaling NOK 520 million ($86.2 million) per day. The shutdown could also enforce the government to intervene and resolve the dispute.

Oil companies as well as unions of the offshore workers have already been negotiating for agreements, failure of which would halt oil and natural gas production in Norway. Notably, Norway now stands out as Western Europe's largest oil exporter and the world's second-largest exporter of gas.

The strike, which initiated on June 24, was for an early retirement scheme (from 62 years onwards) demand for offshore workers with full pension rights. However the employers’ group OLF disagreed saying that their demands are ‘unreasonable’ and not in line with the government reforms.

This ongoing strike has already cost the industry and state NOK 2 billion ($334 million) as well as affected output at five fields. This has also resulted in a 15% cutback in daily oil output and 7% drop in gas production from the world’s eighth-largest oil and gas exporter − Norway. As per the U.S. Energy Information Administration, Norway was the 14th largest supplier of international oil last year and the country’s production accounts for about 2.5% of the world's oil on a daily basis. Most of the production is allocated for export.

Again, the lockout would adversely affect all companies, including biggies like ConocoPhillips (COP), Royal Dutch Shell Plc (RDS.A) and BP Plc (BP), which remain involved with production on the NCS. It could take one to four days to shut down all production on the NCS, depending on the distinctiveness and intricacy of each field.

The NCS comprises 70 oil and gas producing fields located on the blocks − The North Sea 56, The Norwegian Sea 13 and The Barents Sea 1. The clash has already resulted in the complete shut down of Oseberg, Heidrun, Brage, Veslefrikk and Huldra fields. Among these, Oseberg is a vital oil field as crude oil generated from it forms part of the Brent Index.

The company is also the major owner of the BP-operated Skarv field, lying 22 miles (35 kilometers) north of the Norne field and 28 miles (45 kilometers) south of the Heidrun field. Production start-up plans for the field might get postponed from autumn. 

We remain Neutral on Statoil for the long term. The company also holds a Zacks #2 Rank, which is equivalent to a short-term Buy rating.

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