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Norway oil output slips again as industry difficulties mount

London — Norway's oil production slid further in April, by 1.4% from March levels and 7.5% from a year earlier, to 1.73 million b/d, according to official statistics published Wednesday, as the industry grapples with technical problems and errors in its Arctic expansion.

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For the first four months of 2019 the country's oil production was 9% lower than the same period a year earlier, averaging 1.8 million b/d, down some 200,000 b/d from a recent annual peak of 2 million b/d in 2016, figures from the Norwegian Petroleum Directorate (NPD) showed.

Norway's oil output is expected to regain ground with the start of production from the giant Johan Sverdrup field, expected in November; Sverdrup is expected to take 12 months to reach its first-phase target of 440,000 b/d.

But the industry, and state-controlled Equinor, are suffering a spate of technical difficulties that suggest it is struggling to manage legacy output.

And expansion into the Arctic has taken a severe knock due to a catalog of errors at the first such oil project, Goliat, which has attracted growing criticism centered on Italian operator Eni and issues with supervision by the Petroleum Safety Authority.

Unplanned outages, including an apparent oil spill at the Statfjord field, as well as seasonal maintenance, suggest production may remain depressed this month.

The International Energy Agency in its latest oil market report cut its Norwegian output projection for this year by 20,000 b/d compared with its previous report, to 1.74 million b/d.

On top of general environmental unease, Norway's industry is grappling with failings at the country's first Arctic oil project, Goliat, and slower than hoped for progress on expansion in the Barents Sea generally.

Poor execution at Goliat, which was developed by Italy's Eni, with Equinor as junior investment partner, has sparked recriminations in recent months. The Petroleum Safety Authority has faced criticism from the country's Auditor General for allegedly failing to exert sufficient control, leading to the field being brought on stream before it was ready, while the PSA has described a loss of "trust" in relation to the project's execution.

ARCTIC MILESTONE

After Johan Sverdrup, Equinor's next flagship project, Johan Castberg, should boost Arctic production, but expected volumes are unclear. The Castberg project is due on stream in 2022 and relies on a more conventional floating production, storage and offloading vessel than the cylindrical design used for Goliat, which is deemed to have contributed to risky practices at the facility.

Figures from the NPD suggest production at Goliat remains well down on 2018 levels, with output averaging 48,000 b/d in the first three months, compared with a capacity at the FPSO of 110,000 b/d. Eni span off its Norwegian business into a joint venture with private equity backed Point Resources called Var Energi (Our Energy) last December.

Var Energi's recent annual report notes that Arctic operations come with challenges different to those operating in less harsh climates and adds that it has been learning how to manage such issues.

-- Nick Coleman, nick.coleman@spglobal.com

-- Edited by Alisdair Bowles, newsdesk@spglobal.com