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Goliath Sinking In Debt…has gone wrong with this project. This is the title of an article published by the Norwegian newspaper Aftenposten. It makes reference to the arrival to Hammerfest (Norway) of the Goliath FPSO (floating production storage and offloading unit). This unit which is the world's largest floating oil drilling and storing platform was designed to operate in the world's northernmost oilfield, the Goliath field located in the Barents Sea (if you are interested in this topic, search Wikipedia for "Goliath field").

But this is not the most interesting information, what is interesting is the gigantic boondoggle that this platform represents. A few numbers for your consideration:

  • The final tag price is 50% higher than originally planned (from 30 billion NOK to 47 billion NOK).
  • The construction of the platform is "only" two years behind schedule.
  • Drilling and operating in extreme conditions is so expensive that oil prices will need to rise by 60% just to break even.
  • Norway will pay about 90% of all these costs.
  • The two companies owing the license to extract oil are partially owned by Norway (about 60% of Statoil) and by Italy (about 30% of Eni).
  • The project was approved by the Norwegian government in 2009 when oil supplies were low but no reconsiderations were ever made.
  • According to the Norwegian government "The project is profitable for its partners (Eni holds 65 percent and Norway’s Statoil 35 percent) and contributes large revenues to Norwegian society through petroleum taxes”

CLARIFICATION

A few days back we published the article Why Large Government Projects Fail where we explained why large government projects…well…fail… Goliath is one of such example. It was OK'd by the Norwegian parliament with an ultra-short view of future oil prices. It's price tag is astronomical by any measure, and the two companies licensed to perform the exploration belong to governments to a large degree.

Do you begin to see the problem? It is not just the lack of long term planning but the fact that they are playing with people's taxes at many levels. Norwegian taxpayers are being ripped off to buy an ultra-expensive platform which was contracted with two companies who are owned by countries to a large degree.

Politicians in Norway don't care about taxpayer money and both companies are being handsomely compensated to the point that the whole boondoggle is actually profitable for them! Who is stuck with the loses? You got it. The Norwegian sucker.

As if this would not be bad enough, we have to put up with Norwegian politicians' nonsensical mumbo-jumbo stating that the project "contributes large revenues to Norwegian society through petroleum taxes". The what?

Hold on.

Norway spent 47 billion NOK to build this monstrosity. It will operate at about 60% loss level. Eni and Statoil are being paid from this production and whatever is left is sold and taxed. Then, Norway receives this tax.

Humm…. So the tax will not only not cover production costs paid by Norway (not even close) but it won't repay a single cent of the 47 billion NOK that Norway paid for the platform!!! Not to mention that to a large degree the Norwegian state will tax itself!!!

But hey! The platform will deliver 500 jobs!!! Hurrahhh!!!

This must be the most horrifically expensive job creation program in the whole history of humanity. Every one of those jobs cost "only" 94 million NOK per employee!!!

Yeah… that makes a lot of sense.

Do you actually believe that any private enterprise would have embarked in something this expensive without a clear indication and assurances of profits? Do you actually believe that any private enterprise would not have cancelled the project or at least delay it or paused? Do you actually believe that any private enterprise would be stupid enough to operate such a massive loss generating machine without a plan or future prospect? Hell no! Not a chance!

CONCLUSION

When we bother highlighting something it is usually with good reason. This is a classic example of a government failure to plan. And why is it so? Because it is taxpayer's money they are playing with. Should Eni and Statoil be real for-profit purely private companies, they would not, in their wildest dreams attempt to manufacture and operate a monstrosity such as Goliath. It is only through the enabling capacity of the Norwegian state that such a gigantic waste of money is made possible.

But as usual, there are people out there that believe that the platform will eventually become profitable because the world is running out of oil. This may be. However, considering that most oil producing governments are embarked in a race to the bottom since they are desperate for funds, it is unlikely that this will happen. Goliath may just go down in history as the most expensive oil producing platform ever built which was operated its entire life at a loss in an era of oil scarcity (beyond peak oil)! Yes, only through governments is this possible. But you seem to like it. Enjoy. Just one thing, hope you are not Norwegian.

Note: please see the Glossary if you are unfamiliar with certain words.

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