(Bloomberg) -- Statoil ASA gave the final go-ahead to a flagship Arctic oil project after slashing costs by half.
While expected, the move by Norway’s biggest oil company is a boost to a region seen as key to arresting a decline in the country’s production.
In a striking illustration of how oil companies have adapted to lower prices, Statoil cut estimated investments at the Johan Castberg project to about 49 billion kroner ($6 billion) from an initial forecast of more than 100 billion kroner, it said on Tuesday, reiterating a figure given in June. The field in the Barents Sea is due to start production in 2022.
Castberg is the world’s biggest offshore oil project to get the go-ahead this year, with resources of 450 million to 650 million barrels, according to Statoil. The decision comes at a critical time for the industry’s Arctic ambitions. The Barents is thought to hold about half of Norway’s undiscovered oil and gas, yet Norwegians are increasingly debating whether further exploration makes moral or financial sense amid efforts to fight climate change.
Castberg, made up of deposits discovered from 2011, is only the second oil project approved in the region. The first, Eni SpA’s Goliat field that started production last year, has come under intense scrutiny following delays, cost overruns and safety mishaps. The government is also facing a lawsuit from environmental groups challenging Barents license awards.
Like Goliat, Castberg has been delayed several times, in part because of the collapse in oil prices. Statoil and partners Eni and Petoro AS have since shelved plans for an onshore terminal at North Cape. With a simpler concept and declining supplier prices, the operator cut the price needed to break even from more than $80 a barrel to below $35.
“Even if this is the Arctic and everyone thought this would be extremely complex, with high costs, we’re showing that we’re getting robust profitability,” Margareth Ovrum, Statoil’s executive vice president for technology, projects and drilling, said in an interview in Oslo. “I’m proud of that.”
Statoil on Tuesday also signed contracts with Aker Solutions ASA, totaling about 4 billion kroner, for Castberg’s subsea system and for engineering and procurement management.
As politicians debate the economics of Goliat, Statoil and the government will be keen to showcase Castberg as a profitable project that will add infrastructure to the underdeveloped area.
Norway’s crude output has dropped by half since 2000, and successive governments have pushed the Barents to make up for the decline of North Sea fields. Yet explorers have failed to come up with discoveries similar to the giant fields of the North Sea that made the country’s fortune.
In a sign that oil companies may be less interested in the area after a record campaign yielded disappointing results this year, Norway received only 11 applications in the Barents-focused 24th licensing round, down from 26 in the previous one.
©2017 Bloomberg L.P.