Norway Reaching Its Peak In Oil Production; Statoil Cutting Back -- Not Necessarily A Bakken Story

Over the past year there have been a number of stories written about the headwinds/obstacles that Statoil has been facing. Individually the stories were not all that interesting, but in the aggregate there seemed to be a theme developing.

Overnight a reader sent me this Bloomberg article suggesting things might be getting a big dismal for Norway:

A near half-decade boom in oil investments in Norway is about to come to an end, sapping momentum in the economy of western Europe’s largest crude producer, the country’s main economic forecaster said.

“The big change next year is investment in the petroleum industry because we have reached the highest level, it’s peaking next year,” Hans Henrik Scheel, director general of Statistic Norway, said yesterday in an interview at his Oslo office.

Oil investment will stabilize at a high level and the “demand impulse will be there but not a growth impulse,” he said. Scandinavia’s richest nation has used its oil wealth, which it funnels into an $850 billion sovereign wealth fund, to save itself from the wave of recessions that tore through most of the rest of Europe.

Yet that’s left Norway’s economy reliant on fossil fuels and with weakened competitiveness. Statistics Norway yesterday cut growth forecasts in the mainland economy, which excludes oil and gas, through 2016 as investments and record consumer debt weighs on households.

Statoil, Norway’s biggest oil producer, said last month it would cut planned investments by 8 percent over the next three years as the stagnant price of oil weighs on cash flow. The government, which owns 67 percent of Statoil, warned that planned projects must go ahead. The company, along with the rest of the global oil and gas industry, is reviewing investments after oil prices slid about 15 percent to $108 a barrel since 2011. 

$95 oil? I assume they are talking about the price of Brent, but i could be wrong. That would price WTI about $85, I suppose. The Bakken will do just fine.

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Later. After posting the above, Don sent me the following comment from the MDU message board over on Yahoo!, one of the better message boards:

Most of the folks I talk to use $80 for investment assumptions and the futures curve agrees with that range.

I think the Chevron CEO was taking about the possibility that Brent stays in the current range. They showed a chart to 2030, 200 billion barrels of oil need to be found and produced just to stay up with normal declines and modest growth. If you figure it costs $50 per barrels to find it, that's going to cost $10 trillion. If I got my zeros correct, you could buy 25 Exxon's for that price tag.

The oil price is kind of like the '08, '09 financial disaster, a lot of people have assumed we were going to revisit it. Like Buffet said on CNBC the other morning, we will have a blow out again but who knows when and what causes it. Same thing with oil I suspect. We have gone up 10x in the past decade and a half.

And the US shale experience, while it is impressive, is only a million barrels more this year, and that won't keep up with global demand. I'm hard pressed to see much of a decline from the current levels and with a blowup in the Mideast, $100 might seem cheap.

The US energy revolution is under-appreciated, in my opinion, and I think we might still be in the early innings.

But frankly, I think I will continue to try to ride it on the infrastructure side of it, more than the producer side, maybe just a chicken's way to play it without a lot of the commodity exposure.

One of the reasons the globe may not be able to replicate the shale revolution world wide is the lack of infrastructure and a built in market, we still import 40% of what we use. We hear all of the negative-talking heads, and we do have warts, but this is by far the best country on the planet, and I don't see anyone challenging us for that spot any time soon.

There were a couple of comments that deserve repeating:

• the US energy revolution is under-appreciated
• the shale story may be in its early innings
• $100 oil might seem cheap someday

With regard to the US energy revolution, I think this is the most important story: cheap energy. Americans, individually, and collectively, will have more discretionary income to spend and invest relative to others around the globe will be spending more and more individually and collectively on energy needs.

The Bakken phenomenon has also resulted in oil price stability, which is more important than the price of oil. Price volatility kills individuals and corporations: they can't plan and they get hit broadside when they least expect it. I have trouble believing that the price of oil would not have surged last Friday on news coming out of the Crimean had it not been for the Bakken, Permian, and Eagle Ford, all part of the Bakken legacy and laboratory.