Norway is growing increasingly intolerant of delays and cost overruns at offshore oil projects and plans to keep a closer eye on operators, intervening when necessary, the head of the oil directorate said. A growing number of inexperienced firms are working on projects, which is a big risk for the government because it offers big development subsidies, regulator Bente Nyland said on Tuesday. As a result, the directorate will start to get involved earlier and stay involved throughout, she said.
“This regulatory tightening is a signal that we’re watching you,” Nyland told Reuters on the sidelines of the conference. “With the tax regime, the state is a big risk taker … so we need to have better control.” The entire global oil sector has suffered from cost increases, but Norway has fared worse than most. Nyland earlier estimated that the per unit development and production cost in Norway has risen by 10 times over the past 10 years.
Last year the government commissioned a report to find out why so many projects were delayed. It also cut both the amount and the time limit for cost write-offs. “First and foremost the well costs must be reduced,” Nyland said.
“We believe that much better preparation is needed. Do your homework better.” “We may go in earlier and point out when a project takes a wrong turn … and ask for mitigating measures.” Nyland said that 16 of the 22 oil firms working on developing new projects are considered to have minimal experience on the Norwegian continental shelf.
To mitigate risk, the oil directorate may ask for more mature development plans, prequalification of contractors and detail on contracting strategy. It will also keep close watch on development plans and require operators to improve their monitoring, which has slipped as more work is outsourced to contractors. Statoil is Norway’s biggest oil producer, and most global majors are also present. But tax credits and outright subsidies on exploration and development have also attracted a string of smaller players in recent years.