Norway expects to see two major field development plans in 2017

Oseberg A platform offshore Norway; Image: Statoil/Harald Pettersen

The Norwegian Petroleum Directorate (NPD), a government agency whose task is to manage the oil & gas resources on the Norwegian Continental Shelf, expects ten new plans for field developments in the next few years, with two major ones expected this year. 

The regulator on Thursday issued a report detailing the Norwegian shelf’s performance in 2016 as well as projections for future developments.

The directorate opened with a positive note saying that, while the adjustment process has been extensive, the cost reductions implemented by the industry will lay the foundation for profitable activity for many years to come.

On the shelf, oil production increased for the third consecutive year in 2016, and gas production was at the same level as the previous year, which was a record year for production. This was made possible, according to the NPD, due to regular performance of the fields and efficiency measures that have led to reductions in operating and exploration costs.

NPD Director General Bente Nyland believes that cost reductions of 30 to 50 per cent in development projects should mean that companies will view more projects as being profitable. “We must prevent the focus on short-term profits from coming at the expense of long-term value creation for society,” she says.

Investments down in 2016

Investments on the Norwegian shelf in 2016 amounted to NOK 135 billion, about NOK 50 billion less than the peak years 2013 and 2014. Nyland predicts that the current year and next year will also be challenging for the industry, but investments are then expected to increase again.

Five Plans for Development and Operation (PDO) were submitted in 2016, with a total investment value of NOK 23 billion. Seven development projects with a total value of NOK 233 billion are currently ongoing.

Looking ahead, the NPD’s forecasts assume that about ten PDOs will be submitted over the next few years with PDOs for two major developments expected in 2017, Johan Castberg in the Barents Sea and the further development of the Snorre field in the North Sea. The PDO for Johan Sverdrup Phase II is expected in 2018, and PDOs for several other development projects are also anticipated.

In 2016, 36 exploration wells were drilled, which is 20 wells less than in 2015, and eighteen discoveries were made, one more than in 2015. Exploration activity was highest in the North Sea, where a total of 14 discoveries were made. Two discoveries were made in both the Norwegian Sea and the Barents Sea.

According to the Director General, there is a great deal of uncertainty associated with exploration activity going forward and that is why it is very important to maintain exploration activity at a high level in order to maintain stable production in the future.

When it comes to the interest in the Norwegian shelf, fifty-six production licenses were awarded in APA 2015, while ten were awarded in the 23rd licensing round.

Investments & cost forecasts

The petroleum industry’s effort to reduce costs, along with falling supplier prices, have resulted in a considerably lower cost level, which reflected both on lower investments in new projects, reduced costs for new production wells on fields in operation, as well as reduced operating and exploration costs.

There is little doubt that 2017 will be yet another demanding year for the industry, the NPD said. Although investments are still falling, the decline is slowing. Investments are expected to rise gradually following a minor drop from 2017 to 2018. The start-up of a number of new projects is expected to contribute to greater investments starting in 2019.

Operating and exploration costs will also be further reduced from 2016 to 2017, followed by leveling out and a gradual increase.

Cost level reductions

Development costs for a number of projects, both ongoing developments and projects under evaluation, have been significantly reduced.

According to the NPD, the operators of seven development projects offshore Norway in 2014 projected that total investments for these projects would be around NOK 220 billion. However, the projection in 2016 dropped by 50% to around NOK 110 billion. Recoverable resources for these projects remain virtually unchanged.

These seven projects are Johan Sverdrup phase II, Johan Castberg, Utgard, Oda, Trestakk, Dvalin and Snilehorn. A break-even price for most of these projects is less than $40 and for some less than $30.

Total investment estimates

In 2016, investments have declined from a record-high of about NOK 185 billion in 2013 and 2014, to NOK 135 billion. The reduction from 2015 to 2016 amounted to 16 percent while 2017 investments are estimated at NOK 120 billion, i.e. a drop of 11 percent. From 2017 to 2018, investments are projected to drop by an additional 5 percent, followed by a moderate rise.

The decline in investments in the next few years is among other things linked to completion of several fields that have recently come on stream, including Goliat and Ivar Aasen which came on stream in 2016, as well as a number of major ongoing field developments approaching production start-up.

Investments for 2017 in ongoing field developments are estimated to be approx. NOK 55 billion, and will then decline rapidly as these fields come on stream.

Exploration costs 

Overall explorations costs for those 36 wells drilled in 2016 amounted to NOK 22 billion, a reduction of 35% compared to 2015 costs. From 2016 to 2017, exploration costs are projected to decline further by about 15 percent, followed by a gradual increase.

Overall production forecast

The most recent prognosis from the NPD shows a substantially higher production level than that shown in the Shelf in 2015. During the period from 2017 to 2030, it is now estimated that production will be five per cent higher than the estimate shown last year.

Four fields closed

The NPD concluded the report with information regarding fields that were shut down during 2016. These include Varg, Volve, Jette, and Jotun field. Parts of the Jotun field, Jotun A FPSO, will still be used in operation of the Ringhorne and Balder fields.

During the year, the authorities received cessation plans for an additional three fields or facilities, also all located in the North Sea: Oselvar, Gyda, and the old living quarters platform on Valhall.