Daily Management Review

Markets Surprised by Western Europe’s Top Oil Producer


08/08/2016




Markets Surprised by Western Europe’s Top Oil Producer
As Middle Eastern output is climbing to records amid OPEC’s battle to defend market share, production increases from Norway and the neighboring U.K. are adding to a global supply glut.
 
“The road ahead is far from smooth” as large stockpiles are forecast to keep weighing on oil prices even as the market balancing is progressing, said the International Energy Agency last month.
 
The Petoro CEO said that how much of the companies’ cuts are actually lasting improvements is hard to know at this point in time. The cost savings for the industry however needs to be made in such a way that the supply companies are not hurt by the cost saving attempts. There is tremendous pressure on the supply companies to reduce the prices they charge for services. For the oil industry, the supply industries provide services and equipments from drilling to catering and platform to engineering and construction activities in drilling.
 
“You also need to talk about real efficiency improvements. It’s important to have a sustainable supplier industry in Norway, which can both deliver efficient products and develop the new technology that allows us to take the next step forward,” Moen said.
 
It wouldn’t be “unnatural” that the market downturn also led to a change in the industry structure through more transactions, said Moen when he was referring to the merger of Det Norske Oljeselskap ASA and BP Plc’s Norwegian unit.
 
“What’s important to us is that we have a diversity of companies that have the ability to implement projects,” she said.
 
To combat a rout that has left oil prices 60 percent lower than two years ago, investments have been slashed and efficiency is sought to be increased by companies led by state-controlled Statoil ASA which operates about 70 percent of the fields. But thanks to more efficient operations and past investments that have just started delivering barrels, current output has risen even as spending on future production dwindles.
 
While gas output has missed expectations in only three months over that time, crude production in the Scandinavian nation has exceeded the Norwegian Petroleum Directorate’s forecasts each month since July 2014. The NPD said in July that there had been an increase of 2.8 percent in the amount of oil pumped in the first six months of 2016 compared to expectations.
 
Based on NPD figures, analysts say that it would rise to 91.5 million cubic meters from 90.8 million cubic meters in 2015 if oil production continued to exceed at the same pace for the remainder of the year. This means that mean output would rise unexpectedly for a second year and would defy a forecast drop. After output halved from a peak in 2000, it would also be a third consecutive annual increase.
 
On pace to surpass last year’s record 117.2 billion cubic meters, gas output has beaten forecasts by 12 percent this year.

Petoro’s Moen said that efficiency improvements haven’t come at the expense of maintenance work on offshore fields while the efficiency improvements in production depend on companies keeping a focus on profitability.
 
Higher well productivity, an optimization of maintenance activity and a dramatic reduction in unplanned production losses has led to the higher output, Statoil CEO Eldar Saetre, said late last month.
 
(Source:www.bloomberg.com) 






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