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09-07-2012 15:23:00

UPDATE: Norwegian Oil Production To Close Unless Government Steps In - Industry

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(Adds analyst comment and oil price.)

-- Total production shutdown looks unavoidable, says industry association

-- Analysts say North Sea market and oil futures will rise if there is a shutdown in Norway's oil and gas production

-- Shutdown would cut 3.8 million barrels of oil equivalent a day

-- Statoil facing losses of $85 million a day in event of shutdown

-- Statoil would declare force majeure on some contracts

By Christina Zander

STOCKHOLM--No new meetings have been scheduled between parties in the Norwegian oil strike, and a costly shutdown of all production in Western Europe's largest oil exporter now looks unavoidable unless the government steps in to end the 16-day dispute, the Oil Industry Association said Monday.

"Unless the government steps in, there will be a lockout," Eli Ane Nedreskar, head of information at the OIA, told Dow Jones Newswires. "We haven't been in contact with the unions since negotiations broke down Sunday."

Crude prices in the North Sea market and oil futures will rise if a shutdown in Norway's oil and gas production begins later in the evening, European crude traders and analysts said Monday.

"The market will become very, very, very tight," said a North Sea trader.

Monday's rise in Brent crude futures has already been largely driven by the fact that no agreement was reached in negotiations between striking Norwegian oil and gas workers and their employers over the weekend, said Thina Saltvedt, a senior oil market analyst at Nordea Bank Norge.

"If the lockout lasts for several days, oil futures could rise by a dollar or two [a barrel], as Norway supplies 11% of oil the European Union consumes," she said.

At 1137 GMT, the front-month August Brent contract on London's ICE futures exchange was 43 cents, or 0.4%, higher at $98.62 a barrel.

The lockout, announced by the OIA Thursday and due to begin midnight Monday, is an attempt to end a strike by more than 700 North Sea oil workers over pensions. It would affect all of the 50 or so companies with production on the Norwegian continental shelf, including Statoil ASA (STO), Total SA (TOT), ConocoPhillips (COP), Royal Dutch Shell PLC (RDSB) and BP PLC (BP).

Total production on the shelf is 3.8 million barrels of oil equivalent a day, according to the OIA, the value of which is estimated at 1.8 billion Norwegian kroner ($300 million).

"We are preparing to close down our production at midnight," said Bard Glad Pedersen, spokesperson at Statoil.

The Norwegian government, which can impose compulsory arbitration, Friday urged oil companies and three unions representing offshore workers--Industri Energi, SAFE and Lederne--to continue talks, but negotiations broke down early Sunday. The Ministry of Labour had no comment Monday other than that it continues to monitor the situation.

"This [lockout] will significantly raise the costs of this conflict," said Leif Sande, leader of union Industri Energi.

For Statoil, which is 67%-owned by the Norwegian state, stopping production would lead to the loss of around 1.2 million barrels of oil equivalent per day. The company's lost revenue would amount to around NOK520 million per day.

Mr. Glad Pedersen said a shutdown would be a hard blow to the credibility of the company and the country as an oil and gas exporter.

The U.S. Energy Information Administration ranks Norway as the world's 14th-largest supplier of oil in 2011, producing about 2.5% of the world's oil on a daily basis, most of which is tagged for export.

Mr. Glad Pedersen said Statoil is now in talks with customers regarding deliveries and that the company will claim force majeure, a clause used when a company can't meet supply obligations because of circumstances beyond its control, in relation to some contracts if it isn't able to deliver.

Thus far, a little more than 10% of the 6,500 workers covered by the offshore-wage agreement have been pulled off the job as a result of the strike, which began June 24. At that level, the strike has slowed the country's oil output by 240,000 barrels per day, or 15%, and its gas output by 11.9 million cubic meters of gas a day, or 7%. It has led to more than NOK2.7 billion in lost revenue for oil companies.

The unions want an early pension scheme included in the collective wage agreements, which would cost NOK35 million a year. Statoil and the other operators on the shelf introduced such a scheme in 1998, giving workers the right to quit at 62 with 66% of full salary. Statoil removed this scheme earlier this year.

The OIA argues that pensions aren't part of centralized wage agreements, and that retirement systems are a matter for each company.

Write to Christina Zander at christina.zander@dowjones.com

Konstantin Rozhnov contributed to this story.

(END) Dow Jones Newswires

July 09, 2012 09:23 ET (13:23 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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