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Norway's offshore sector boosted by wave of mergers

Strategic tie-ups are providing some badly needed lifeblood for the Norwegian offshore sector

Gazprom may have given up on its plans to get a toehold in Norway's upstream via an alliance with Austria's OMV; but the current wave of mergers and asset consolidations are beefing up investment prospects for an offshore sector eager to stem future production declines.

In October, Gazprom abandoned plans to swap assets with Austria's OMV, a move under discussion for two years. The deal would have given the Russian state-backed company a 38.5% stake in OMV's Norwegian subsidiary, OMV Norge, in return for a share in its Achimov development in Russia. Instead, OMV has agreed to buy a 24.98% stake in the 4A and 5A phases at Achimov for an undisclosed cash sum. The firms say the deal's terms will be fleshed out in early 2019.

Norway's energy ministry had expressed reservations over the deal, fearing it would give Gazprom more clout in the European gas sector at a time when concerns over Russia's perceived supply monopoly in parts of the continent are at a peak.

The reasons for abandoning the asset swap weren't revealed. But it may be that Gazprom concluded that the 38,000-barrels-of-oil-equivalent-a-day share it would have gained from the deal wasn't worth the political hassle. The company has bigger fish to fry elsewhere, particularly securing the future of the Nord Stream 2gas pipeline project.

Filling the majors' shoes

Despite the occasional setback, the industry's appetite for Norwegian offshore projects has held up better than some had expected, especially among small and middle-ranking players.

The majors have generally been slimming down their Norwegian asset portfolios. In October, Chevron was reported to be in the process of selling its remaining exploration holding in the country—a 20% stake in the PL859 license in the Barents Sea.

But a series of strategic company and asset mergers are enabling smaller firms—sometimes in partnership with bigger players—to bolster their financial positions to maintain capital spending in Norway and elsewhere. They're now keen to stay in a country where developments that looked pricey two years ago have benefitted substantially from the fall in drilling costs during the post-2014 sector downturn and the more recent rise in oil prices.

The September decision by Germany's BASF and LetterOne—controlled by Russian billionaire Mikhail Fridman—to push ahead with the merger of their hydrocarbon's businesses, Wintershall and DEA, bolsters the potential for spending in Norway. The companies have said they're committed to spending some €2bn each on Norwegian projects in the next two-to-three years.

"With more than 100 licenses and shares in 20 producing fields, we could increase our joint production in Norway to over 200,000 boe/d in the near future," Wintershall chief executive Mario Mehren said of the combined business at August's ONS conference in Stavanger. Mehren will head the merged business, which has operations around the world and could be floated as a standalone company.

Big spenders

A bigger force still is likely to be Var Energi, the product of a merger agreed in July between Eni's Norwegian subsidiary Eni Norge, and Point Resources, which is owned by Norway-based private equity firm HitecVision. Point bought Norwegian assets from ExxonMobil in 2017.

Philip Hemmens, managing director of Eni Norge, has spoken of the merged company's "aggressive growth plans". Var plans to sink more than $8bn into Norwegian projects over the next five years, boosting its production from some 180,000 boe/d in 2018 to around 250,000 boe/d by 2023 by developing 10 existing assets with more than 500m barrels of reserves, as well as investing in fresh exploration and asset purchases.

In October, Eni Norge received the go-ahead to drill an appraisal well at its Goliat West project in the Barents Sea, adjacent to the existing Goliat project, which Eni (65%) and its partner Equinor (35%) brought on stream in 2016. Goliat, the world's most northerly operational oilfield, is capable of producing around 100,000 b/d, though output was erratic during the first two years of operation because of shutdown's due to maintenance issues and safety concerns.

Aker BP grabs Lear

Meanwhile, Aker BP, the biggest of the recent string of merged entities, continues to make waves, having been created in 2016 by bringing together BP's Norwegian exploration and production business and the assets of Norwegian-Based DNO. Output from its fields dipped by 4.6% in Q3 2018 to 150,600 boe/d, due to the impact of maintenance on two fields. But the company is sticking to guidance that full year production will average around 155,000-160,000 boe/d.

In mid-October, the firm agreed to buy Equinor's 77.8% stake in the King Lear gas and condensate find in the North Sea for $250m in cash. Aker BP intends to develop King Lear, which has estimated reserves of 77m boe, as a satellite of its existing Ula development, 50km (31 miles) to the north. The firm says the two developments between them will add 100m boe of net resources to the company's books.

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