Luno and Draupne field development plans unfolding

Luno field operator and 50% owner Lundin Norway AS, a subsidiary of Lundin Petroleum AB (STO:LUPE)), announced that field development plan for the Luno field is starting to be put in place. The oil field is located in production license PL 388 in the North Sea offshore Norway, The license also covers Tellus discovery. Other partners are Wintershall Norge (a subsidiary of world’s leading chemical company BASF SE from Germany) with 30% stake and RWE Dea Norge AS (a subsidiary of RWE Dea AG which in turn is a subsidiary of German electric power and natural gas public utility RWE AG) with 20% portion.

Light oil was discovered in the field several years ago and subsequent appraisal wells have extended recoverable reserves. There is a detailed description of the early work done on the field at offshore-technology.com. Lundin expects 90,000 barrels of oil per day (bopd) peak production. Luno contains 186 million barrels of proven and probable oil equivalents (MMboe). The field is expected to start producing in late 2015.

Lundin is in negotiations with Det norske Oljeselskap ASA (OSE: DETNOR), the operator at Draupne field on license PL001B, which is located 8 kilometres northwest of Luno, for a unitized development plan. A coordinated development solution for the two fields was requested by The Ministry of Petroleum and Energy. The Ministry’s rationale was that both society and licensees can expect substantial savings from such a solution and made the companies aware that development and operation plans would not be accepted without such an agreement in place.

Partly processed oil and gas would be transported to Luno platform from Draupne field for stabilization and export. Lundin expects that an agreement will be conducted shortly. Draupne field is expected to produce 143 million barrels of oil and gas. Luno platform design capacity will accommodate in excess of 120,000 bopd when Draupne production is combined with Luno’s. The licensees at Draupne are DETNOR (35%), Statoil (OSE:STL, 50%) and Bayerngas Norge AS (owned in decreasing order by Bayerngas GmbH, Stadtwerke München, Swissgas and TIGAS-Erdgas, 15%).

Engineering, procurement and construction (EPC) company Kvaerner (OSE: KVAER) was awarded Luno field jacket EPC contract worth approximately 1.1 billion NOK by Lundin. Kværner will deliver a steel jacket weighing some 14 500 tonnes executed by Kvaerner's yard in Verdal. The engineering starts immediately and fabrication will start in Q4 2012 with expected delivery in the spring of 2014. .

Historic Kværner name returned to prominence after a few year hiatus after a spin-off from Aker Solutions. Kværner had been around for nearly 150 years before it started a period of rapid expansion acquiring several companies in different fields. This caught up to the company when the economy turned sour upon the collapse of the dot-com bubble in the beginning of the previous decade, and it was forced to merge with rival Aker ASA or face bankruptcy.

Total capital costs for Luno field are expected to be around 4 billion USD (nearly 24 billion NOK). This includes the processing platform on a jacket, the wells and export pipelines tied to existing infrastructure (to the Grane oil pipeline). Rowan Companies Inc has a contract to provide a Rowan Stavanger jack-up rig to the area to drill the Luno development wells at an average day rate of about 340 000 USD (2 million NOK+) in between June 2013 and November 2016 to drill 15 wells. Contracts for marine installation and topside are expected to be awarded soon.

Draupne operator DETNOR has contracts in place for front-end engineering and design (FEED) study of Draupne development with Aker Solutions (OSE: AKSO) and a 400 million USD 3-year drilling contract (extendable for 7) with Maersk Drilling (a subsidiary of A.P. Moller - Maersk Group (OMX: MAERSK A, OMX: MAERSK B) for newbuild jack-up rig, XL Enhanced 2, which is designed for use in ultra harsh environment and is currently under construction in Singapore scheduled to be delivered in 2014.

Other week 49 2011 news from Nordic companies

Here are some additional newsworthy events in brief:

Financial Times is reporting that Nokia is coaxing interest of potential buyers to divest its luxury phone brand Vertu. Some private equity firms seem interested and the sales price should be several hundred million Euros.

Eu/Norway fish talks for 2012 North Sea fisheries resulted in increases for herring, haddock and whiting quotas (with North Sea herring quota more than doubled to 405,000 tons), with cod and saithe quotas down a notch. Further talks will be made for mackerel total allowed catch as a solution in the mackerel war with Faroe Islands and Iceland is sought after.

Christmas demand has raised Norwegian salmon spot prices some 20% within a few weeks. While still far away from 45 NOK per kilo levels of this summer, this breaks a lengthy trend straight down and farmed salmon companies have responded positively.

Vestas turbine in Ayrshire wind farm, Scotland caught fire in hurricane Bawbag.

Maersk Drilling received LOA from Det Norske Oljeselskab (OSE: DETNOR) to Draupne license in the North Sea for newbuild jack-up rig, XL Enhanced 2, which is designed for use in ultra harsh environment and is currently under construction in Singapore scheduled to be delivered in 2014. The total value of the three year contract is over 400 million USD.

Outotec has acquires furnace refractory demolition business Kiln Services Australia. The company envisions doubling Kiln’s annual sales over the next three years.

Højgaard Industri, a part of Højgaard Holding (CPH: HOEJ B) won a new management contract‏ with Banedanmark for the production of concrete sleepers at the Fredericia facility. The previous contract with between the companies was coming to a close and Højgaard Industri won out in the contract award procedure.

There have been wild swings in Frontline (OSE: FRO) stock after its creative restructuring plan was made public this week.

Kone Corporation will supply elevators and escalators to Lishui Wandi Plaza. The large eight building complex in the city of Lishui in Zhejiang province should be completed in 2013.

Clas Ohlson (STO: CLAS B) missed expectations for 1.5.2011-31.10.2011 period.

TTS Group ASA won two contracts from Hyundai Mipo Dockyard co. Ltd worth around 117,5 million NOK in total.

Purchase-to-pay and Financial Management solutions software provider. Basware Corporation lowers 2011 estimates.

Cevian keeps buying into Tieto ((OMXH: TIE1V, OMXS: TIEN).

Neste Oil is selling its 50% portion of iso-octane, a gasoline component produced from Butane, plant in Edmonton, Canada to Keyera Corp for 99 million USD.

Connection between Aldous and Avaldsnes oil discoveries established

Statoil (OSE: STL) said that the recent oil find in the North Sea is even bigger than expected as communication between Aldous and Avaldsnes oil discoveries has been confirmed. If combined, this is a top ten oil discovery in Norway and largest since mid-eighties. The companies involved are Statoil, Lundin Petroleum AB (STO:LUPE), OMX: Maersk Oil of A.P. Moller – Maersk Group (OMX: MAERSK A, OMX: MAERSK B) Petoro AS and Det norske oljeselskap’s (OSE: DETNOR). Production is expected to start towards the end of this decade.

Successful wells bring some joy into a miserable day in the markets

Statoil (40%) as the operator and partners Petoro AS (30%), Det norske oljeselskap’s (OSE: DETNOR) (20%) and Lundin Norway AS (part of Lundin Petroleum AB (STO:LUPE))(10%) made a high-impact oil discovery on the Aldous Major South prospect (PL 265) in the North Sea. The reservoir is of excellent quality and preliminary volumes are estimated 200-400 million barrels of oil equivalent for this part of the prospect. Statoil estimates further upside adjacent to the discovery.

Lundin Petroleum estimates that the discovery is most likely an extension of the Avalsdnes discovery made by Lundin Petroleum in PL501. Together the discoveries may allow for a new stand-alone development in the North Sea. Markets had high hopes for the project as it was described as high-impact in prior investor meetings.

Total E&P Norge AS as operator.made a gas discovery at Norvarg prospect in the Barents Sea. North Energy ASA (OSE:NORTH),(20%) RockSource (OSE:RGT) (20%) and DETNOR (20%) are the partners in the license. Preliminary estimates indicate potential from 10 to 50 billion cubic metres of recoverable gas corresponding to between 63 and 315 million barrel of oil equivalents.

DETNOR’s stock benefited the most from being a part of both of the discoveries and was up nearly 15% for the day. The company said that Norvarg may represent significant value. Other public companies mentioned here were down with the rest of the market.