BARENTS SEA
Photo: Ole Jørgen Bratland, Statoil
Spinning the drillbit: The West Hercules in the Barents Sea
renamed Johan Castberg. But shortly afterwards Statoil iced an This discovery, some 240 km north-west investment for Johan Castberg, citing of Hammerfest, is reckoned to hold 400concerns about the project economics 600 million barrels of oil, a large oilfield given recent drilling results and the by most standards but marginal given reduced uplift in the petroleum tax system. the remote and challenging conditions of In May Oslo proposed to reduce the uplift the Barents Sea. Statoil, already mulling in the petroleum tax system from 7.5% to development 5.5%, a moved that concepts and Statoil reckoned even naming would reduce tax Lundin is Veidnes outside deductions on Honningsvåg in the Norwegian a pioneer of Finnmark county as continental shelf by new plays the site for a new oil NOK 38 million terminal for Johan per every NOK 1 Castberg crude, billion invested. The with a view to first oil in 2018 at a rate of proposed change, the first fiscal surprise almost 200,000 barrels of oil equivalent for Norwegian operators in 20 years, not per day, was keen to find more oil to shore only hits the economics of marginal high up the project economics. risk projects like Johan Castberg but also The first of the four wells, 7220/5-2, creates a climate of uncertainty about drilled by the West Hercules to test the the forward fiscal regime for investors Nunatak prospect, encountered gas in planning to make long term multi-billion rocks of Cretaceous age but was deemed dollar investments. non-commercial. The company put a “Costs are high in Norway and they brace face on this setback, with senior have been steadily rising year on year vice president of exploration Norway, and that makes it difficult to make what Gro G. Haatvedt, pointing out that you would call a marginal field like Nunatak had the highest geological risk Johan Castberg economic,” remarks profile of the four prospects, and was Dickson. “That's why Statoil has gone testing a new geological play in the area. back to the drawing board to change the
scope of the development and cut a little bit off the costs.” He adds: “The tax changes do not make these developments uneconomic on their own, but they don't help.” There may be some relief on this front. Oslo has shown itself willing in the past to support challenging developments, as at Snøhvit, so there could be the potential for a tax break to help push Johan Castberg over the commerciality threshold and unlock investment. “The Norwegian Government is one of the most switched on when it comes to making the most of the country's natural resources,” says Dickson. “There have been some early noises about potential tax breaks and there's precedent with Snøhvit to have a different rate of depreciation.”
High risk drilling In the meantime, Statoil continues to spin the drillbit. The Nunatak dud was followed by drilling on the Iskrystall prospect, an early-middle Jurassic play proven by the Skrugard and Havis discoveries, but at a significantly greater depth. The September 2013 well found a 200 metre gas column but gas is no use to the partners at this stage and the result dealt a further blow to prospects of
www.frontierenergy.info WINTER 2014 07