Giant Oil-Field Boost Is Bad for Market, Good for Norway

(Bloomberg) -- A torrent of oil from the giant Johan Sverdrup field may not be what the market needs right now, but it’s a welcome boost for Norway and the companies involved.

The North Sea field’s first phase will peak at 470,000 barrels a day in early May, state-controlled Equinor ASA said on Monday. That’s at least a month early, and 30,000 daily barrels more than forecast.

The news coincides with a crash in the oil market, with Brent crude descending to 17-year lows near $23 a barrel. But Sverdrup is profitable at less than $20, and contributes vital cash flow to Equinor, other owners including Lundin Petroleum AB, and the Norwegian government as it contends with the fallout from the coronavirus pandemic.

“With low operating costs, Johan Sverdrup provides revenue and cash flow to the companies and Norwegian society at large in a period affected by the coronavirus and a major drop in the oil price,” Arne Sigve Nylund, Equinor’s executive vice president for development and production in Norway, said in a statement.

Equinor, Lundin and fellow Sverdrup owner Aker BP ASA all fell by at least 4.7% in Monday trading as the drop in crude dragged down energy stocks. The companies have recently taken drastic measures to cope with the double crisis: all have slashed spending, while Equinor has halted buybacks and Lundin is so far the only one to have cut dividends.

Sverdrup Timing

Sverdrup has so far been a well-timed project for Norway. It was discovered in 2010, just as western Europe’s biggest oil-producing nation was expecting output to dwindle. The venture was greenlighted in 2015, providing a lifeline to oil-field service companies ravaged by a slump in crude, while the field’s owners got bargain prices for supplies. The field started output ahead of time in October, with oil hovering around a comfortable $60 a barrel.

The industry is now facing a historic double whammy with demand hit by the pandemic while Saudi Arabia engages in a price war with former partners.

Yet Sverdrup will have operating costs of less than $2 a barrel once it reaches maximum output in its first phase. Equinor also increased its estimate for so-called plateau production in phase 2 by 30,000 barrels a day to 690,000 barrels. That’s expected to happen at the end of 2022, when the market might look a lot different than it does now.

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