Brent Crude Heads Higher as Norway Strike Cuts Production

Hundreds of oil workers in Norway have gone on strike over wages, after talks broke down on Sep 30. Per Norwegian Oil and Gas Association, six offshore fields have stopped production since Oct 5 unless a deal is agreed with the Lederne trade union. Fears of supply disruption helped Brent crude — the international benchmark — rise toward $45 a barrel.

The shutdown affects fields, most of which are operated by state-controlled energy giant Equinor EQNR, cutting output by 330,000 barrels of oil equivalent per day (or 8% of the country’s overall volumes). Lederne represents about 15% workers on Norwegian oil and gas rigs, or just over 1,000 members, and 169 of these have gone on strike. Meanwhile, wage negotiations for the remaining 85% of Norwegian oil workers — represented by unions Industri Energi and Safe — have already been settled.

Lederne is bargaining for the financial well being of its members by seeking to match pay and perks for remotely working onshore staff with their offshore counterparts, apart from pushing for a higher wage hike this year than what the oil companies are ready to give.

An escalation of the stoppage is feared from Saturday, Oct 10, when Lederne plans to send 93 more workers on strike unless a wage bargain is arrived at in the meantime. This would affect operations at Zacks Rank #2 (Buy) Equinor-run Oseberg South, Oseberg East and Kristin fields, plus the ConocoPhillips COP-operated Ekofisk Bravo/Kilo water injection installation.

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The association says that seven more oil and gas fields could completely or partially close by Oct 14, including Equinor’s giant Johan Sverdrup discovery. Equinor holds a 42.6% stake in the Johan Sverdrup development process while Swedish oil producer Lundin Petroleum AB (who discovered the field in 2010) owns 20% interest. The remaining shares are held by TOTAL TOT, Aker BP and Petoro.

The oil field is the biggest in North Sea and came online ahead of schedule in October 2019. With a production potential of 470,000 barrels per day, the closure of Johan Sverdrup could significantly curtail volumes from Western Europe’s largest oil producer. Overall, approximately 966,000 barrels per day of output is set to be cut from Norway’s production, accounting for almost 25% of the total.

Norway churns out around two million barrels of oil, condensate and natural gas liquids per day, while its output of natural gas currently stands at nearly 300 million cubic meters per day. Norway's government — which has the authority to invoke emergency powers to force a settlement between striking oil workers and employers, and did so in 2012 to end a similar conflict after 16 days, is not currently looking to intervene. A similar strike in 2018 saw Royal Dutch Shell RDS.A shut down its Knarr oil and gas field.

While Lederne has not ruled out a resolution, the strike is likely to hit earnings and cash flows of Norway-focused energy players.

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