A half-filled glass

Bente-Nyland
01.12.2015

Many people are lining up to predict the decline and fall of the Norwegian oil industry a few years from now. Such thinking is too short-term.

We don’t share that pessimistic picture, even though the industry faces challenges from oil prices and costs. It’s worth noting that less than half the estimated resources on the NCS have been produced and sold.

In our view, the glass is half half-full, not half-empty. But we, too, have been concerned for a long time about the costs, low efficiency and overruns seen in recent years.

Almost 100 discoveries are being assessed for development or in line for such evaluation. Many can be tied back to existing fields from a new subsea installation.

No less than 10 fields have been sanctioned for development or completed in recent years. Four were brought on stream in 2014 alone.

The biggest, Johan Sverdrup, is set to generate big government revenues for 50 years from 2019. It will join the 81 fields – a record – currently yielding oil and gas on the NCS.

Some 165 projects are under way or planned on these producers to boost their recovery factors even further, and thereby increase value creation for society beyond the original estimates.

The government received applications not long ago from 43 oil companies who want to explore more in the mature areas of the NCS. Almost as many as last year’s 47, these applicants are looking for new opportunities despite the fall in oil prices.

And the deadline for applications in the next regular licensing round – the 23rd in Norway’s oil history – expires in December. We once again expect great interest.

So is everything in the garden lovely? Of course not. We see that the companies are competing to cut costs and downsize their workforces.

Every krone to be invested is keenly evaluated. Projects such as ones for improving recovery from producing fields are being postponed, along with a number of the new discoveries.

This is critical for some, because the fields or transport systems meant to handle the new resources have limited producing lives.

Our concern here means we will be paying particularly close attention to ensuring that work commitments in the licences are followed up.

Other discoveries can comfortably be put on hold until the relevant area is better developed, and it will be possible to achieve coordination gains.

Today’s conditions are nothing new in the oil industry. Downturns have occurred before in this cyclical sector. It has emerged strengthened each time by getting better control over costs and with the aid of recovered oil prices.

The cost picture has improved – drilling a well, for example, is cheaper than it was two years ago. And most oil market experts predict that prices will recover. The question is when, not if.

By its very nature, oil is a longterm business. Ten years usually pass between discovery and production. The profitability of a new find is not determined by current prices, whatever some might say.

Responsible politicians and those who take a pessimistic view the NCS could contribute to a better-informed debate by taking note of this time frame.

We’re also worried, at this time of cost-cutting, that important expertise will deteriorate. There’s room to talk up an industry as important as petroleum a bit more. Don’t forget that the engineers who’ll be helping to operate Johan Sverdrup have scarcely been born yet.

 

"Talk up the industry a bit more"

 

Bente Nyland
director general


Norwegian Continental Shelf no.2-2015

Main page - Contents
The interview: Petroleum minister calls on companies to invest
Thinking outside the box made Maria’s development possible
Special report: 50 years
Norway’s offshores sector safer than before
Safety carries a cost
Seeking to cut documentation
Eldar Myhre and son Aslak discuss what oil has done with Norway
NPD profile: Diskos database crucial for exploration success
Making huge volumes of offshore data available
Adding up to acclaim
Rockshot: Tight formations
Geology: Many benefits for society
www.norskpetroleum.no: Find facts about the NCS