Norway oil producers seeking clarity on production cut announcement

London — Norwegian oil producers were seeking clarity Thursday on a landmark production cut announced by the government in support of wider OPEC-plus output cuts intended to overcome the crisis in oil markets, as the country unveiled a tax break for the industry.

In a statement late Wednesday, Norway's petroleum and energy ministry said crude production would be cut by 250,000 b/d in June and 134,000 b/d through the second half of the year, in accordance with a clause in the country's petroleum act allowing curbs based on "important interests of society."

It added the launch of production from a number of new projects would be delayed into 2021 due to the coronavirus pandemic, resulting in production in December 2020 being 300,000 b/d below original expectations. It said fields that had been due to start producing but been delayed by the pandemic would have contributed 166,000 b/d of oil production in December.

Industry sources said the cuts did not come as a surprise, but much remained to be worked out in terms of the details.

"In the current unprecedented situation cuts in oil production introduced by the government will contribute to a faster stabilisation of the oil market compared to letting the rebalancing take place only though the market mechanism," the ministry said in a statement.

Petroleum and energy minister Tina Bru added: "The regulation will cease by the end of the year."

The production cut marks an unusual intervention for Norway, but is not unprecedented; output curbs were implemented in the wake of the 9/11 terrorist attacks in the US in 2001. Norway's Equinor, the country's largest producer, remains majority state-controlled.

The ministry said the cuts would be based on individual field production and be "fairly distributed between the fields and thereby between companies," and seemed to indicate a degree of flexibility, noting companies would be consulted before permits were granted.

"Production regulation will be implemented through a proportionate limitation for those fields covered by the regulation based on production permits granted, the reference production and other relevant information from the companies," it said.

Details to follow

The ministry also said gas and condensate fields would not be affected, implying a portion of oil production derived from fields such as Troll should be exempt, although state-controlled Equinor, which operates the Troll field, did not respond to a request for comment. Troll is one of the Norwegian crudes that contributes to S&P Global Platts' Dated Brent benchmark, along with Oseberg and Ekofisk.

At 1,859,000 b/d, the "reference" production level quoted in the statement, from which cuts are to be calculated, is higher than actual crude production levels in the first three months of this year, which totalled 1.70 million b/d. Norway's production of condensate and natural gas liquids over the first three months averaged 340,000 b/d.

The ministry noted the reference level took account of recent upward revisions in expected output from the giant Johan Sverdrup field, which came on stream in October 2019 and reached an expected 'plateau' production level of 470,000 b/d in April, according to Equinor's partner in the field, Lundin Energy.

Lundin said Thursday it had already sold all its crude oil liftings into June, likely comprising production from Johan Sverdrup and its flagship Edvard Grieg field, which feeds into the Grane heavy oil blend. It said this was an issue that would have to be discussed.

Meanwhile the government announced a tax break designed to support the country's crucial oil and gas industry through the current crisis. The measure does not change the headline rate of upstream production tax, which stands at 78%, but effectively reimburses companies for approved investment, rather than such spending being deducted from later tax payments.

The move should provide around NOK100 billion ($10 billion) of liquidity to the industry in 2020-21, the government said in a statement.