Image courtesy of Helge Hansen/Statoil.

Labor costs are threatening the profitability of Norway’s oil and gas sector where average salaries have now reached $179,000 per year.

Norway has already faced 13 years of production declines as North Sea fields mature.

High labor costs could slow new investments if oil prices continue to fall, Bloomberg said.

According to the Norwegian government, investment in the oil industry could drop by as much as 18 percent in 2015.

A tax increase on oil companies implemented last year is compounding the problem.

High operating costs tend to make Norway’s oil and gas sector more sensitive to price fluctuations.

“If the oil price stays at the current level for a while, we can take for granted that there will be changes in investments,” Swedbank analysts Teodor Sveen Nilsen told Bloomberg.

Norway’s Statoil has already slowed its U.S. shale expansion, shelved its Alberta oil sands project and suspended two rigs.

Three more projects led by Statoil could be at risk for delays or outright shelving, managing partner of Norway-based consultant Rystad Energy Jarand Rystad said.

The company has also cut 2,000 jobs since the second quarter in an effort to boost profit margins as prices weaken and its output drops.

A wave of layoffs has also hit other oil and gas companies operating in Norway as expenditures are cut back.

While the break even point varies for each project, analysts have placed the break even price for some of Norway’s largest projects such as the multi-billion dollar Castberg project at round $80 per barrel.

In August, former Statoil CEO Helge Lund said a $100 per barrel price point barely covered the costs of new projects.

A decline in revenues would impact Norway’s economy and government budget as well. Oil and gas make up nearly a quarter of Norway’s economy and fiance domestic and international government spending.


Leave a Reply