INTERVIEW: Norway's new-generation fields well placed to ride out downturn: Lundin CEO

London — The new generation of Norwegian oil fields such as Johan Sverdrup and Edvard Grieg should be able to withstand the coronavirus crisis and help underpin the country's production through the coming months, according to Alex Schneiter, CEO of Lundin Petroleum.

Listed in Stockholm and a third-owned by Sweden's Lundin family, Lundin Petroleum has become a major player in Norway's oil and gas industry, with output expected to reach 145,000-165,000 b/d of oil equivalent this year.

But plummeting prices and the coronavirus pandemic are shaking the sector. Consultancy Wood Mackenzie estimates a quarter of North Sea fields could be running at a loss.

Speaking to S&P Global Platts last week, Schneiter acknowledged some of Europe's ageing oil and gas facilities could face difficulties in the current crisis, which has raised fears for the health of offshore workers and the viability of the relatively high-cost basin.

However, he affirmed expectations that Norway could prove resilient thanks to fields such as Johan Sverdrup, which came on stream in October and was discovered by Lundin in 2010.

The field, in which Lundin holds a 20% stake, now accounts for a fifth of Norway's oil output. Its operating costs are estimated at less than $2 per barrel of crude.

Senior partner Equinor this week confirmed that Sverdrup production would outstrip original target levels, saying it should reach a "plateau" of 470,000 b/d in the first production phase, and 690,000 b/d under a second phase in 2022-23.

With production already at 430,000 b/d, completing the first-phase ramp-up should be smooth, but disruption can't be ruled out in the current situation, and preparations are in place, Schneiter said.

He described Johan Sverdrup as a low-cost, hi-tech "platform of the future" in which workers were well protected, with plenty of space to enable social distancing, and said production could continue even if workforce numbers needed to be temporarily reduced.

"You could operate Johan Sverdrup with a relatively small amount of people in production only, and the living quarters are very, very large," he said. "Johan Sverdrup reflects the platform of the future. It fits all the ingredients, particularly when a crisis like this one is hitting us."

Careful crisis planning means Norway's oil and gas industry generally is proving resilient, Schneiter said, adding that Lundin's own financial balance sheet remained "very strong" despite a decision to reduce its dividend last week.

"I'm actually very impressed — when things started to get more difficult with coronavirus and all the logistical problems, the government, the unions, the companies worked hand in hand, very constructively," he said.

"Everybody has put their own interest aside and is really looking at how best we can work together," he said, noting flexibility on areas such as the length of offshore work stints.

Norway's oil and gas industry "is well prepared. Before the coronavirus there was a good plan in place to deal with any exceptional situations and I think right now they're dealing very well with it," Schneiter said.

Grieg performance

Schneiter was also upbeat on Lundin's Edvard Grieg field, which feeds into Norway's Grane crude blend, accounting for about 40% of Grane shipments. Both Sverdrup and Grane have proved popular with Chinese refiners, with Norway among China's top 10 crude suppliers in January-February, according to Chinese customs data.

Edvard Grieg, which came on stream in 2015, "continues to outperform," Schneiter said. It produced 90,000 b/d of crude last year with no significant decline expected until 2022, and the potential to extend that plateau to 2024 if additional reserves are confirmed.

"When you look at platforms such as Edvard Grieg and Johan Sverdrup they are completely different platforms [from the past]. The engineering is very different from what it used to be," he said, noting that Lundin had reduced the workforce at the Edvard Grieg facilities from 90 to 50 in the current crisis, providing "plenty of spare capacity" in terms of facilities.

He added that a maintenance shutdown planned for this year was under review, in line with other producers now choosing to sustain output and avoid non-essential maintenance.

"Edvard Grieg has been a phenomenal story for us and a really important one for us because [it] has funded Johan Sverdrup," Schneiter said, noting also Lundin's $5 billion reserve-based lending facility, of which it has drawn $3.8 billion.

Last week Lundin announced a 12% spending cut for this year and cut its dividend from $1.8/share to $1/share.

However, Schneiter said the company was set to break even at average oil prices of just $17/b over the next six years, reflecting operating costs of $3.2-$4.2/b for its overall portfolio.

Once phase 2 of Johan Sverdrup is on stream Lundin will need oil prices of just $10/b to generate free cash flow, he said, adding, "In today's environment we can still generate free cash flow when the oil price is at $20-plus."

He said the company was unlikely to draw much more of its reserve-based lending facility, with other sources of finance available. "Our balance sheet is very strong. The reduction in the dividend is further increasing our strength and our flexibility."

One area that has gone on to the "back-burner" is two oil discoveries, Alta and Gohta, that Lundin made in the southern Barents Sea, an area currently lacking pipeline infrastructure.

With reserves in excess of 120 million barrels, the finds are unlikely to be viable on their own and may be tied to Equinor's Johan Castberg project, Schneiter said. Castberg is due on stream in 2022. However, a standalone development might be viable if a further exploration well the company plans to drill this year in the area gleans additional resources, he said.