Norsk Hydro to Write Down Value of Front Runner Field in Gulf of Mexico

Norsk Hydro to Write Down Value of Front Runner Field in Gulf of Mexico

Norsk Hydro ASA said Monday it will write down the value of its stake in the Front Runner field in the Gulf of Mexico by US$462 million (euro358 million) after taxes due to lower production and higher costs than expected.

The Oslo-based oil and light metals group owns a 25 percent stake in the deepwater field, which is operated by the Murphy Oil Corp. of the United States, with a 37.5 percent stake.

Norsk Hydro said in a statement that it decided to write down the value of its share after a general review of its Gulf of Mexico assets. It said the remaining book value of its Front Runner stake will be US$201 million (euro156 million).

“Although Front Runner has been a disappointment so far, we remain confident that the Gulf of Mexico, with our significant exploration assets, will continue to be an important core area in our international portfolio,” said Eivind Reiten, Hydro’s president and chief executive officer.

Norsk Hydro has stakes in about 40 Gulf of Mexico fields, and acquired the interest in Front Runner following its purchase of Houston, Texas-based Spinnaker Exploration Co. in 2005.

The company said it will also write down the value of 10 other Gulf fields by US$87 million (euro67.5 million) after taxes.

The group also said it was cutting its proven reserves figure for the Gulf by 7 million barrels of oil equivalent, but noted that it is less than 0.4 percent of the total. However, Norsk Hydro said its daily worldwide production target of 605,000 barrels of oil equivalents for 2007 remains unchanged.

Since Norsk Hydro warned the market in October that a Front Runner writedown was expected, there was no apparent impact on the group’s share values. The company’s shares were up 0.9 percent at 200.75 kroner (US$31.62, euro24.24) in early trading on the Oslo stock exchange.

In December, Norsk Hydro signed an agreement with state-controlled Statoil ASA to take over Hydro’s oil division. In a separate statement, the companies said they had completed value verification of information the companies exchanged in signing the merger agreement.

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