Wood Mac: Norway could take $84B in taxes if discovered resources are developed

Yesterday at the ONS in Stavanger, Wood Mackenzie released its latest upstream estimates revealing that Norway has 10 billion barrels of oil equivalent (boe) of discovered natural resources yet to be developed.

Despite being at different stages of evaluation, facing intense investor scrutiny and considerable technical and commercial challenges, Wood Mackenzie says over 60% of the resources could be commercialised – potentially adding US$106 billion (NKr 649 billion) to the country’s oil and gas industry revenues.

The most recent upstream analysis from Wood Mackenzie shows that across Norway there are 10 billion boe of discovered but yet to be developed oil and gas resources.

The 10 billion boe of undeveloped resources are held within 206 discoveries – ranging in size from under 1 million boe to the giant 2.4 billion boe at Johan Sverdrup – and spread across the Norwegian Continental Shelf, with half in the North Sea and the remainder divided equally between the Norwegian Sea and the frontier Barents Sea. Although the resources are at different stages of evaluation, Wood Mackenzie says over half could be commercialised and generate significant returns.

James Webb, North West Europe Upstream Analyst for Wood Mackenzie explains: “We consider 4.8 billion boe likely be economic’, 1.6 billion boe potentially economic and the remaining 3.6 billion boe not commercial and therefore will remain undeveloped. From this we estimate the volumes in the likely and potentially economic discoveries represent US$22 billion (NKr 135 billion) of potential value for companies in the sector and US$84 billion (NKr 514 billion) in tax revenue alone for the Norwegian government – excluding the profits of Statoil and the State Direct Financial Interest (DFI).”

However, Wood Mackenzie cautions that there are significant challenges that will need to be overcome in order to maximise the value of these projects. Webb says: “Not all undeveloped discoveries will reach commerciality. A considerable number of technical and commercial challenges exist that could threaten the development of these discoveries. Low reserves, lack of infrastructure and/or complex geology are just some examples of the technical obstacles faced.

“Commercially, the global upstream industry faces an extremely difficult economic environment. Investors are increasingly demanding bigger dividends and a better rate of return. As a result many companies have committed to stricter capital discipline and are intensely screening projects based on financial criteria. Capital intensive projects are particularly being scrutinised. This means more difficult projects could be delayed, and in some circumstances will simply remain undeveloped,” adds Webb.

Wood Mackenzie also suggests recent exploration success in Norway has hindered the pace of the development of these discoveries.

Webb continues: “Over the last five years the average size of new discoveries has been greater than the average undeveloped field and therefore new fields have been prioritised. In keeping with the capital discipline theme, complex developments such as high pressure high temperature (HP/HT) are also being delayed in favour of more straightforward projects.”

Despite the obvious obstacles Wood Mackenzie says the pipeline of future developments in Norway is strong.

“These undeveloped resources account for much of the remaining value for several companies, including Lundin Petroleum, Det Norske, Faroe Petroleum. This creates an incentive to quickly commercialise the finds and bring them onstream. However we see increased cooperation between the companies, state DFI, and Norwegian government as vital in order to achieve the US$106 billion prize (NKr 649 billion),” Webb offers in closing.