By Kjetil Malkenes Hovland
OSLO--Oil services companies are confident they can keep pace
with the boom in Norway despite record-high demand for their work,
said Boston Consulting Group Inc. (BCG.XX) in a
government-commissioned report published Wednesday.
But they see the rising costs of doing business in the Nordic
country, especially wage growth, as a threat to the sector's
ability to stay competitive, the BCG report said.
BCG was hired to review whether Norway's oil services industry
would be able to meet demand toward the end of the decade.
Investments are expected to reach a record-high NOK204 billion ($36
billion) in 2013 and remain high for years.
Of 31 oil services companies interviewed by BCG, 66% said that
they are "comfortable" or "very comfortable" about their the
capacity to handle growing demand, even though 73% admitted they
were worried about a shortage of qualified engineers.
"It's good that the industry itself believes it has and will
build enough capacity to supply a high level of activity both in
Norway and globally," said the country's oil minister, Ola Borten
Moe.
Norway expects investment and maintenance costs offshore Norway
to increase 17% in 2012, and then 3.4% annually until 2016, raising
concerns that projects could be delayed by supplier industry
constraints.
Recent examples of delayed projects include the BP Plc (BP)
operated Skarv field and the Talisman Energy Inc. (TLM) operated
Yme field.
The government estimates the Skarv investments at NOK47.1
billion, a 32.4% cost override, and Yme investments at NOK14.1
billion, 188% more than the original estimate from 2007.
The 24 offshore oil and gas projects under development in Norway
are expected to cost NOK391.9 billion, 14.4% more than the original
estimates, according to the 2013 government budget.
The report warned that in operating at high capacity while
trying to build more rigs, companies may have a tough time dealing
with any changes to projects or additional construction needs. This
could delay projects and increase costs.
In 2011, Norway-based oil services companies made 42% of their
revenues outside of Norway, according to the oil analyst firm
Rystad Energy. Key oil suppliers in Norway include internationals
such as Halliburton Co. (HAL), Baker Hughes Inc. (BHI) and
Schlumberger Ltd. (SLB), and Norwegian companies such as Aker
Solutions ASA (AKSO.OS), National Oilwell Varco Inc. (NOV), Subsea
7 S.A. (SUBCY), IKM, Reinertsen and Bergen Group.
"The review by Boston Consulting Group shows that international
capacity is built in addition to, not at the expense of, capacity
in Norway," said Mr. Moe.
-Write to Kjetil Malkenes Hovland at
kjetilmalkenes.hovland@dowjones.com
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