Exploration activity

Photo: Harald Pettersen, Statoil     The picture:
From Transocean Leader, while drilling to delineate the Johan Sverdrup discovery in the North Sea in 2011.
(Photo: Harald Pettersen, Statoil)


In order to produce the petroleum resources found on the Norwegian continental shelf, we must first explore for and prove these resources. Exploration activity is an important indicator of future production. Generally, it takes several years from when a decision is made to explore for resources until potential discoveries can come on stream. 10-15 years is not uncommon in frontier areas. Formulation of exploration policies is therefore an important part of long-term Norwegian resource management, and these policies have been designed with a view towards making the Norwegian continental shelf attractive to both established and new players who can contribute to efficient exploration. The Government will provide companies with access to attractive exploration acreage, which should include a mix of mature and less explored areas.


Exploration wells spudded on the NCS 1966–2011

Figure 5.1 Exploration wells spudded on the NCS 1966–2011
(Source: Norwegian Petroleum Directorate)


On the Norwegian continental shelf, the Norwegian Parliament (Storting) has opened most of the North Sea, the Norwegian Sea and the southern Barents Sea for petroleum activities. Estimates prepared by the Norwegian Petroleum Directorate of undiscovered resources in areas on the shelf total around 2.5 billion Sm3 of recoverable oil equivalents. The resources are fairly evenly distributed between the three regions, with about 33 per cent in the North Sea, about 31 per cent in the Norwegian Sea and about 36 per cent in the Barents Sea (see Figure 5.2). There are varying challenges as regards realising the economic potential of the undiscovered resources, depending on the maturity of the area.


Undiscovered resources distributed by area.

Figure 5.2 Undiscovered resources distributed by area.
The number in each column indicates expected recoverable volume while the uncertainty in the estimate is shown by the slanted line, low estimate on the left, high estimate on the right.
(Source: Norwegian Petroleum Directorate)


Fact box 5.1 The licensing system

The Norwegian licensing system consists of two types of licensing rounds. The first is the numbered licensing rounds which comprise less mature parts of the shelf. These rounds have been used since 1965, and in recent years have been held every second year. The oil companies are invited to nominate blocks they would like to see announced and, on this basis, the Government determines a certain number of blocks for which companies can apply for production licences.

The other licensing round system entails award of production licences in predefined areas (APA) in mature parts of the continental shelf introduced by the Government in 2003. This system entails the establishment of large, pre-defined exploration areas comprising all of the mature acreage on the shelf. Companies can apply for acreage within this defined area. The area will be expanded, never reduced, as new areas are matured. A regular, fixed cycle is planned for licensing rounds in mature areas. So far, nine annual rounds have been carried out (APA 2003–2011).

Under both types of licensing rounds, applicants can apply individually or in groups. Impartial, objective, non-discriminatory and announced criteria form the basis for the award of production licences. Based on the applications received, the Ministry of Petroleum and Energy awards production licences to a group of companies. The Ministry designates an operator for the joint venture, to be responsible for the operational activities authorised under the licence.

The production licence applies for an initial period (exploration period) that can last up to ten years.


Fact box 5.2 Area fee

The area fee is a policy instrument with the aim of increasing activity in the awarded area. The idea behind the fee is that no area fee will be paid for areas where production or active exploration is in progress. During the initial period, wherein the exploration activity follows a mandatory work programme, the licensees do not pay a fee. After the initial period, licensees must pay an annual fee to the Norwegian State for each square kilometre of the area covered by the production licence. Effective 1 January 2007, the area fee rules were intensified to reinforce the function of the fee. According to the new rules, companies must pay NOK 30 000 per square kilometre during the first year, and the rate increases to NOK 60 000 in the second year. From and including the third year, companies pay the maximum fee rate of NOK 120 000 kroner per square kilometre. Companies can be exempted from the area fee if they submit a plan for development and operation (PDO) to the Ministry of Petroleum and Energy. The area fee exemption is only granted for the area that comprises the geographical extent of the deposits, and for which a PDO has been submitted. The regulations also provide for an exemption from the area fee for two years if the company drills an additional wildcat well beyond the mandatory work commitment.


Exploration policy in mature and frontier areas


Mature areas

Petroleum activities on the Norwegian continental shelf started in the North Sea and have gradually moved northward, based on the principle of stepwise exploration. This means that large parts of the North Sea are now considered to be mature from an exploration perspective. The same applies to Haltenbanken and the area around the Ormen Lange field in the Norwegian Sea, as well as the area surrounding Snøhvit in the Barents Sea.

Mature areas are characterised by known geology and welldeveloped or planned infrastructure. It is very likely that discoveries will be made, but less likely that large new discoveries will be made. It is therefore important to prove and produce the resources in an area before existing infrastructure is shut down. If this cannot be done, profitable resources could be left behind because the discoveries are too small to justify independent development of infrastructure.

In these areas, the authorities have deemed it important that the industry receives access to a larger area, so that resources that are time-critical can be produced in a timely manner. It is also important that area awarded to the industry is explored rapidly and efficiently. In this connection, the Government introduced the awards in pre-defined areas (APA) scheme in 2003. Figure 5.3 shows the area available for award in APA 2011.


Area status on the Norwegian continental shelf per March 2012

Figure 5.3 Area status on the Norwegian continental shelf per March 2012
(Source: Norwegian Petroleum Directorate)


For the authorities, it is important that licensed area is actively worked. The area comprised by the production licence to be awarded is tailored so that companies are awarded only those areas where they have concrete plans. Relinquished acreage can be applied for by new companies that may have a different view as regards prospectivity. This leads to faster circulation of acreage and more efficient exploration of the mature areas. After expiration of the initial period, companies could previously retain up to 50 per cent of the awarded area without committing to specific activity. Today, the main rule is that they can only retain the area for which they have plans to start production.

Frontier areas

The areas currently regarded as frontier areas on the Norwegian continental shelf include large parts of the Barents Sea and the Norwegian Sea, as well as smaller areas in the North Sea. As regards the Norwegian Sea, this applies particularly to deepwater areas and the northernmost areas. The coastal areas in the southern part of the shelf are also relatively unexplored.

Characteristics of frontier areas include little knowledge of the geology, significant technical challenges and lack of infrastructure. Uncertainty surrounding exploration activity is greater here, but there is also the possibility of making major new discoveries. Players that are to explore in frontier areas must have broad-based experience, technical and geological expertise, as well as a solid financial foundation.

Through the 18th licensing round, the principles in the changed rules for relinquishing licences in mature areas were also applied to frontier areas. But it is not expedient for all companies that have been awarded production licences in frontier areas to submit a development plan at the end of the initial period, so the main rule for relinquishment in these areas is linked to delineation of resources proven through drilling. Otherwise, the same changes have been made in frontier areas as in mature areas as regards customising the area to be awarded.

The 21th licensing round was awarded in the spring of 2011, covering 24 blocks in the Barents Sea and the Norwegian Sea. 29 oil and gas companies were granted licenses.

Unopened areas and opening processes

There are still large areas of the Norwegian continental shelf that the Storting has not opened for petroleum activities. This applies to all of the Barents Sea North, eastern part of the Barents Sea South, the north-eastern part of the Norwegian Sea (Troms II, Nordland VII and parts of Nordland IV, V and VI), coastal areas off Nordland County, Skagerrak and the area around Jan Mayen. The general rule for unopened areas is that the Storting must resolve to open an area for petroleum activities before a licensing round can be announced. The basis for such decisions must include preparation of an impact assessment to consider factors such as economic and social effects, as well as environmental effects the activities could have for other industries and the surrounding district.

At present, there are two ongoing opening processes; one for the areas near Jan Mayen and a second for the southeastern Barents Sea area. (See Fact box 5.4)


Fact box 5.3 Management plans

The management plans highlight the Government’s guidelines for carrying out comprehensive management of the Norwegian maritime areas. The objective of the management plans is thus to facilitate value creation through sustainable use of resources and ecosystem services in the relevant maritime areas.

A fundamental precondition for the petroleum activities is coexistence between the oil industry and other users of the sea and land areas which the petroleum activities will impact. The management plans thus establish framework conditions that balance the interests of the fishery industry, the petroleum industry and the shipping industry, while simultaneously ensuring consideration for the environment.

The first management plan, Storting White Paper No. 8 (2005– 2006) Integrated management of the marine environment in the Barents Sea and the waters off Lofoten (HFB) was submitted to the Storting in the spring of 2006. A number of programmes in recent years have gathered more knowledge about the maritime area in advance of the scheduled update of HFB in 2011. The work on a comprehensive management plan for the Norwegian Sea (HFNH) started in the spring of 2007 and was submitted to the Storting in the spring of 2009 as Storting White Paper No. 37 (2008-2009) Integrated management plan for the marine environment in the Norwegian Sea (management plan), while a management plan for the North Sea-Skagerak (HFNS) will be completed in 2013. 

Fact box 5.4 Opening processes for unopened areas

Parts of the Norwegian continental shelf are not opened to petroleum activities. These include parts of Nordland IV, V, and Nordland VI, VII and Troms II, areas near Jan Mayen, the southeast Barents Sea, northern Barents Sea and Skagerak. In addition, there are restrictions or special requirements related to some areas within the opened areas.

Two opening processes for new areas on the Norwegian continental shelf are now ongoing.These processes are governed by the Petroleum Act.

As regards Jan Mayen, the Government decided in 2009 to initiate an opening process for petroleum activities near Jan Mayen, with a view towards awarding production licences. A draft impact assessment programme has been out for consultation and was set autumn 2011. In the time to come, several studies will be undertaken to analyse consequences of petroleum activities on other business, society and the environment. Field studies of flora and fauna on the Jan Mayen island have also been conducted. In addition, the Norwegian Petroleum Directorate will continue its seismic acquisition activities to be able to assess potential petroleum resources in the areas subject to opening processes. If the analyses based on the impact assessment are promising, the Government will recommend an opening of the areas in the autumn of 2013.

On 7 June 2011, the agreement between the Norwegian and Russian authorities on the marine demarcation line between Norway and Russia in the Barents Sea and the Arctic Ocean entered into force . The new area to the west of the demarcation line seems promising regarding hydrocarbon prospectivity. Hydrocarbons are found both east and west of the previous disputed area, where the Norwegian Petroleum Directory started its seismic activity in the summer of 2011. The new area will also be subject to seismic surveys in the summer of 2012. The Norwegian Government has initiated an impact assessment under the Petroleum Act, with a view to granting production licences. A draft impact assessment programme was sent out for public consultation of 2011, and will be finalised during spring 2012. The Storting will receive a recommendation to open the new area for petroleum activities, given that the impact assessment forms a solid foundation for doing so.


Norwegian and Russian part of the Barents Sea per March 2012

Figure 5.4 Norwegian and Russian part of the Barents Sea per March 2012
(Source: Norwegian Petroleum Directorate/OGRI RAS)


The integrated management plan for the Barents Sea – Lofoten area was updated in March 2011. The government decided that during this parliamentary period, no environmental impact assessment will be carried out under the Petroleum Act for Troms II, Nordland VII, or the parts of Nordland IV, V and VI that have not been opened for petroleum activities. The Norwegian Ministry of Petroleum and Energy has been requested to carry out a process aimed at increasing knowledge regarding the unopened areas of the northeastern North Sea. Acquired knowledge will be used to update the integrated management plan. Acquired knowledge will also be fundamental for a potential impact assessment later on. Topics to be included in the knowledge acquisition programme were determined in the autumn of 2011, in close cooperation between the Ministry, local and regional parties, as well as organisations representing various interests and areas. Input meetings have been held in Harstad, Stokmarknes, Svolvær, Bodø and Oslo. Extensive knowledge about the unopened areas already exists; therefore, the focus is to bridge the knowledge gaps. Several studies will be carried out in 2012. The Norwegian Petroleum Directorate has been responsible for a three-year programme for geological mapping and acquisition of seismic data in this process. In total, the Norwegian Petroleum Directorate estimates that there are 202 million standard cubic metres of undiscovered oil equivalents in the evaluated area, which includes Troms II, Nordland VII and Nordland VI.

Player scenario and activity

The number and composition of the oil companies that conduct petroleum activities on the Norwegian continental shelf is called the player scenario. The largest international players have achieved a central role, a natural consequence of the large, demanding tasks on the shelf. As the area has matured and the challenges have changed in character and become more diversified, it has been important to adapt the player scenario to this altered situation. Therefore, in recent years, the focus has been on bringing in new players, in part through establishing the APA system in 2003 and introduction of the exploration reimbursement scheme in 2005 (see Figure 5.7).


Exploration costs in production licences in the North Sea according to the size of the companies

Figure 5.5 Exploration costs in production licences in the North Sea according to the size of the companies
(Source: Norwegian Petroleum Directorate)


Resource growth

Figure 5.6 Resource growth
(Source: Norwegian Petroleum Directorate) 


Rising oil prices and a diverse company picture have contributed to high exploration activity

Figure 5.7 Rising oil prices and a diverse company picture have contributed to high exploration activity
(Source: Norwegian Petroleum Directorate) 


This has yielded results. Following a period of low exploration activity, the situation rebounded in 2006, see Figure 5.6. Figure 5.5 also clearly shows that the new companies are responsible for the increase in drilling costs as exploration activity has recovered and the new players now account for over 40 percent of the exploration costs on the shelf. A new record was set in 2009 with 65 exploration wells spudded. Of these, 44 were wildcat wells and 28 discoveries were made, the highest number so far. A total of 45 exploration wells were spudded in 2010, of which 35 were wildcat wells. Sixteen discoveries were made. In 2011, a total of 54 exploration wells were spudded, of which 22 were discoveries. 2011 will be remembered especially because of the “Skrugard” discovery in the Barents Sea and the “Johan Sverdrup” discovery in the North Sea.

To better pave the way for new players, Storting White Paper No. 39 (1999–2000) Oil and gas activities, introduced a system for prequalifying new operators and licensees. As regards the annual licensing rounds in mature areas, the new players have been awarded significant acreage and production licences. So far, most of the new companies have concentrated on mature areas in the North Sea and Norwegian Sea. In the most recent rounds, these companies have also shown increasing interest in the Barents Sea. More new companies are expected to take part in the licensing rounds in frontier areas as they gain sound knowledge of the shelf and establish larger organisations in Norway. A list of all licensees on the Norwegian continental shelf is provided in Appendix 3.




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