Current BP Stock Info

Natural gas “is the single most important driver” in the $50 billion decline in the value of Norway’s oil and gas assets

Low oil and gas prices have hit Norway hard, according to the country’s government. The value of Norway’s state-owned oil and gas fields dropped 34%, or $50 billion, after oil prices plummeted in late 2014.

A report from oil-data firm Rystad Energy estimates the value of Norway’s direct ownership in oil and gas fields at 810 billion Norwegian kroner ($97.9 billion), down from 1.23 trillion kroner in a similar estimate two years ago, reports The Wall Street Journal.

“As a consequence of a gas-heavy portfolio and high expected gas production [in the next few years], the reduced gas price expectation is the single most important driver of the reduction in portfolio valuation from 2014 to 2016,” said Rystad Energy in the report.

Oil & gas no longer a gravy train to fund Norway’s government

Last year, Norway derived half its oil and gas revenue from production taxes, 43% from the government’s direct ownership in oil and gas assets, and 7% from dividends paid by Statoil ASA, in which the government holds a 67% stake.

Government-owned oil and gas fields contributed 27% of Norway’s total oil and gas output in 2015, or about 1 MMBOEPD. Production is expected to remain largely flat until 2024 and then fade gradually, Rystad Energy said.

Technically recoverable reserves remain relatively unchanged despite drop in price

The drop in oil and gas prices took a bite out of the value of Norway’s assets, but it has only seen global proved reserves drop 0.1%, according to BP’s (ticker: BP) 2016 Statistical Review of World Energy. Global proved oil reserves in 2015 were 1,697.6 billion barrels, 24% more than a decade ago, and enough to meet 50.7 years of global production. Natural gas reserves stood at 186.9 Tcm, enough to meet global demand for 52.8 years.

Investment in oil and gas fell $160 billion, or about 25%, in that same period. A drop that significant in investment has not been seen since the late 1970s said BP Chief Economist Spencer Dale. Production increased 3.2% even as investment fell, driven largely by U.S. shale oil production, as well as Iraq and Saudi Arabia.

BP still likes Norway

As Norway’s government faces the $50 billion decline in the value of its oil and gas assets, BP continues to look for ways to improve its operations in the country.

Last week, the London-based company announced a spinoff of its Norwegian oil and gas fields to Norwegian firm Det Norske Oljeselskap ASA. The deal, which is valued at $1.3 billion, creates a new company called Aker BP ASA, in which Det Norske’s major shareholder Aker ASA will hold a 40% stake while BP and Det Norske’s other investors will each hold 30% interest.

Under the terms of the deal, Det Norske will issue 135.1 million shares at 80 kroner ($12.11) per share for all of BP’s stocks, a tax loss carry forward and a net cash position, according to the statement. Aker will buy 33.8 million of these shares from BP at the same price to achieve the agreed ownership structure.

Smaller company better able to unlock the asset value

BP made the decision to spin off the assets into a new company, rather than selling them outright, because it believes a smaller firm like Det Norske will be able to unlock future value in the five fields it operators in Norwegian waters.

“We think this was the right decision,” BP CEO Robert Dudley said. If BP had sold for cash, it would have missed out on “the long-term growth potential in this company.”

The new company will be Europe’s largest independent E&P with production of 122 MBOEPD. The companies hope to increase production to 250 MBOEPD by “the early 2020s,” according to the press release announcing the deal.

Legal Notice