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Millions of dollars in lost revenue were on the line for E&P companies operating on the Norwegian Continental Shelf if Norway didn’t intervene in workers’ plight for more money and a lower retirement age.
A fight for better pay and pension terms in Norway fueled what could have been a strike with no end in sight, until the country’s minister of labor stepped in and ordered compulsory arbitration to define the new pay agreement.
The action came just 30 minutes before a production shutdown for some of the world’s largest energy companies with operations in the Norwegian Continental Shelf (NCS) was set to commence midnight July 9.
Hopes were that the Norwegian Oil Industry Association would reach an agreement as negotiations continued. But those talks didn’t bring an end to what became a 16-day strike impacting the country, which is the largest holder of natural gas and oil reserves in Europe. The parties still have not reached an agreement, but the crisis that would have stopped the country’s main source of revenue was averted.
“It is a responsible choice made by the government tonight [July 9],” said Jan Hodneland, the association’s chief negotiator. “We are now relieved that we do not have to shut down the production on the [NCS]; however, we were ready to initiate a lockout if the government did not intervene.”
Had the approximately 6,515 workers been idled at midnight, companies with operations offshore Norway risked losing millions of dollars.
Statoil stood to lose the most. The company, mostly owned by the Norwegian government, controls 80% of the country’s oil and gas production, according to the US Energy Information Administration.
Following notice of the lockout, the company stated its production shortfall would be around 1.2 MMboe/d. That equates to about NOK 520 million/day, or US $85 million/day, in lost revenue caused by the production shortage.
News of the avoided lockdown caused the company to scrap its production shutdown plans, a process that was expected to take up to four days.
The shutdown of the Oseberg C, Huldra, Veslefrikk, and Brage, all connected to the Oseberg Field Center where workers have been called to strike, had already happened. Deferred production at those fields was estimated at NOK 150 million/day ($25 million). That production stoppage came after the company closed production from the fields served by the Oseberg Field Center, Oseberg South platform, and the Oseberg East platform in the North Sea.
“Production from these installations will be resumed as quickly as possible,” Statoil said. “It may take from one to two days to get production started. Statoil expects to have the fields back in full production within a week.”
Impact On Other Companies
Other companies with substantial operations offshore Norway include ConocoPhillips and BP.
“If the lockout takes place, all operations on the Norwegian Continental Shelf will be impacted,” said Olav Fjellsa, director of external relations and communication, BP Norge AS. “This means that BP-operated fields Valhall, Hod, Ula, and Tambar will be shut in.”
That was a potential production loss of about 40,000 b/d.
Currently, the oil giant has two major projects under way in Norway. The Skarv FPSO field development offshore the coast of Nordland is expected to start production during 4Q 2012, with about 80% gas and 20% liquids.
And a new platform in the Valhall field in the southern part of the Norwegian North Sea is set to become fully operational this year, according to BP.
In sync with other companies with operations on the NCS, BP made plans to shut down production starting at midnight.
Speaking before Norway’s intervention in the stalled negotiations, ConocoPhillips spokesman Daren Deaudo said, “We remain hopeful that an agreement can be met to avoid a full production shutdown.” The company has an E&P presence in the Norwegian sector of the North Sea.
The company produced 149,000 boe/d in 1Q 2012 in Norway. Its current production comes from the Ekofisk, Eldfisk, Embla, and Tor fields, located about 322 km (200 miles) offshore Stavanger, Norway. ConocoPhillips also has ownership interests in the Heidrun, Statjord, Huldra, and Troll fields.
Strike Over Wages, Retirement Age
Meanwhile, workers continue to push for pay raises and a lower retirement age. The unions went on strike June 24 when negotiations for full pension rights from the age of 62 failed.
Workers covered by offshore pay agreements had been offered an increase of no more than 5%. Other pay components also were increased.
The country’s minister of labor recommended the involved parties continue negotiating to bring an end to the conflict. Already, the ordeal has cost NOK 3.1 billion ($508 million).
“Oil company employees have an average annual income of NOK 1 million ($164,000) and a retirement age of 65,” Hodneland said in a recent public statement. “This already makes them Norway’s pension winners. They’ve nevertheless opted to use their power to win even better terms.
“We’re living longer, so we’ve also got to work longer,” Hodneland said. “The Storting [parliament] approved pension reform in 2011, but the offshore workforce is now refusing to contribute to the national effort in this area.
“The reform allows everyone to retire at 62 if they wish. If they’re to work until 65, it must pay to do so.”
Workers have pushed for similar causes since 1980. Other lockouts also have been diverted thanks to government intervention.
Contact the author, Velda Addison, at email@example.com.