Shell May Close Norway Field a Decade Before Target on Oil Slump

Royal Dutch Shell Plc (RDSA) may close its Draugen oil field in the Norwegian Sea a decade earlier than in a prior assessment of the area’s potential lifespan because of rising costs and a slump in oil prices.

Europe’s biggest oil company expects production in the field to extend until 2024 to 2027 after previously estimating a potential of as long as 2036, Odin Estensen, an asset manager at its Norway unit, said yesterday in an interview in Stavanger.

“It’s becoming more and more difficult to keep these tail-end fields going,” he said. The cost of operations and upgrades has risen and “when you put the oil-price on top of that, the picture is clear: we’re under pressure,” Estensen said.

Shell is among oil companies reining in spending as higher costs in the past decade eroded returns, delaying projects. Oil prices, down by about a third since June, will lead to more delays as profitability falls, the Norwegian Petroleum Directorate said yesterday.

Oil companies operating in Norway say a tax increase last year has hurt projects designed to extend production at mature fields. Statoil ASA (STL), Norway’s biggest energy company, is still reviewing its Snorre 2040 project, which could boost production at the field by as much as 300 million barrels of oil, Ivar Aasheim, a senior vice president, said yesterday at a conference.

Draugen is one of Norway’s most efficient fields with a recovery rate of 70 percent and was initially set to be shut in 2013, according to Shell. From a peak 225,000 barrels of oil a day, the field’s output has declined to an average 30,000 barrels a day so far in 2014, Estensen said.
Production Extension

Shell has currently only applied for a production extension to 2024, he said. Draugen would need new deposits tied in to its installations, which have spare capacity, as well as lower costs to allow the field to produce to 2036, he said.

Shell in April shelved a project to boost recovery from the Ormen Lange gas field in the Norwegian Sea due to higher costs and uncertainty over reserves. It’s considering restarting work on the project in the first quarter of 2016, Estensen said.

“We’re working now to look at a broad spectrum of alternatives to increase recovery,” he said. “It’s very demanding but we’re doing everything we can.”

Shell operates both Draugen and Ormen Lange, with respective stakes of 44.6 percent and 17.8 percent.

For Related News and Information: Norway Faces More Oil Delays, Reduced Exploration on Crude Slump Top-Paid Oil Workers Leave Norway Exposed on Crude Price Dip Shell Shelves Plans to Boost Ormen Lange Gas Output on Costs

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