Introduction and summary

Resrapp2016engelsk-ingress
04.05.2016
The purpose of the 2016 resource report is to detail the status of, facts about and analyses concerning exploration developments on the NCS, and to present an updated estimate for undiscovered resources.  

Introduction

 

The 2016 resource report has three main messages:

  • —Exploration activity has been high over the past decade, and a number of large discoveries have been made. Resource growth from exploration represents substantial value for Norwegian society.
  • The level of exploration activity must remain high if undiscovered resources are to help maintain production from around 2025 and create value both for the industry and for society in a long-term perspective.
  • The total remaining resources can provide a basis for oil and gas production over many decades to come. That view is supported by the updated estimate for undiscovered resources.

 

Figure 1.1 Exploration wells spudded and oil prices, historical.

Figure 1.1 Exploration wells spudded and oil prices, historical.
Sources: BP, Thomson Reuters and EIA


This year marks the 50th anniversary of the first wildcat spudded on the NCS. The first commercial petroleum deposit, Ekofisk, was discovered in late 1969. Once the size of that field had been grasped, it became very attractive for the oil companies to explore the NCS and a number of major discoveries were made over the following decade.

In the course of the 50 years since the first wells were drilled, oil prices have fluctuated considerably. That has also affected the level of activity in the industry (figure 1.1).

 

Targeted measures

Exploration activity declined in the wake of relatively low oil prices during the late 1990s, and the low point was reached in 2005 with 12 wells spudded. Long-term projects such as exploration and technology development were postponed, and many employees made redundant. Companies merged and their diversity was reduced.

The low level of exploration activity prompted the goverment to adopt targeted measures to encourage competition and increase diversity on the NCS. Three adjustments to operating parameters were particularly important – the prequalification of new companies, annual licensing rounds with awards in predefined areas (the APA scheme), and refunding the tax value of exploration expenses. Combined with rising oil prices, these steps led to a sharp increase in exploration activity. New companies became involved, and a number of profitable discoveries were made.

 

Cost reductions

Partly because the level of activity was high, costs eventually rose steeply. Measures were therefore adopted to reduce them and limit capital spending. A big fall in oil prices from the late autumn of 2014 made that even more necessary. Drilling rigs are now being laid up, investment is being postponed and workforces are being downsized. A substantial decline in the number of exploration wells is expected in 2016.

Lower prices give the whole industry a strong incentive to work more efficiently and to be innovative. That will be significant for the competitiveness of the NCS and for achieving good resource management. However, it is important that cost-cutting efforts do not lead to the loss of resources and value, but aim at long-term measures which enhance industry efficiency.

 

Solid resource base

Total expected recoverable resources were estimated at 31 December 2015 to be 14.2 billion standard cubic metres of oil equivalent (scm oe) (figure 1.6 and table 1.1). Of this amount, 6.6 billion scm oe has been produced. After 45 years of petroleum production, more than half the estimated resources remain to be recovered.

Oil production has historically been larger than gas output (figure 1.2). This position has been reversed over the past five years. Gas revenues outstripped income from oil for the first time in 2015.

Forty-one per cent of the remaining estimated resources are classified as reserves and 38 per cent as undiscovered (figure 1.3). Contingent resources in fields and discoveries account for the remainder. Gas represents more than half the remaining resources.

 

Figure 1.2 Production from the NCS, historical.

Figure 1.2 Production from the NCS, historical.

 

 

Figure 1.3 Estimated remaining petroleum resources at 31 December 2015.

Figure 1.3 Estimated remaining petroleum resources at 31 December 2015.

 

Prices – very significant for exploration and recovery

The future development of oil and gas prices will be very significant for exploration activities, the development of discoveries and how much of the resources will be commercial. These trends are governed by conditions external to Norway. What the players – both companies and government – can do something about is to contribute actively to optimising the efficiency of exploration and recovery on the NCS. Improved productivity and lower unit costs could help to sustain activity, production and value creation for a long time to come.

 

Long-term perspective

The NPD takes the view that the total remaining resources provide a basis for continued Norwegian oil and gas production over many decades to come (figure 1.4).

Undiscovered resources will represent an increasing share of annual output from 2025. Substantial undiscovered resources remain to be found.

If these are to help sustain production, a high level of exploration activity must be maintained. Many years can pass before a discovery comes on stream. Exploration activity over the next few years will therefore be important for reducing the decline in production.

 

Figure 1.4 Historical and expected production from the NCS.

Figure 1.4 Historical and expected production from the NCS.

 

 

Summary

 

Chapter 2: Exploration on the NCS

Exploration activity is essential if undiscovered resources are to contribute to production and create value both for the industry and for society. Through its exploration policy, the government gives companies access to exploration acreage in both mature and frontier areas. A high level of exploration activity on the NCS since 2005 has resulted in a number of profitable discoveries.

 

Chapter 3: Undiscovered resources

The updated estimate for undiscovered resources confirms that total remaining resources provide the basis for oil and gas production over many decades to come. It is roughly the same as the previous estimate in 2013. Total undiscovered resources are put at 2 920 million scm oe. About half of this amount lies in the Barents Sea, where the biggest change has occurred in the estimate. It has increased by about 125 million scm oe for this area.

 

Chapter 4: Full-cycle profitability of exploration

Exploration contributed substantial value to society between 2000 and 2014, according to the NPD’s analysis of its profitability during this period.

Overall net cash flow from discoveries made in these years is estimated at roughly NOK 2 000 billion after deducting exploration costs.

The analysis shows that exploration made a positive contribution to value creation in all parts of the NCS. Both activity and resource growth have clearly been greatest in the North Sea, with Johan Sverdrup as the biggest contributor to value creation. Exploration in the Norwegian and Barents Seas has also generated substantial value.

 

Chapter 5: Player picture

A player picture which reflects the challenges facing the industry in both mature and less mature areas is important for realising the resource and value potential.

Companies involved in the exploration phase today display considerable diversity. The result has been a high level of activity, increased competition and a greater variety of ideas, which have yielded many discoveries and created substantial value for society.

It is important that the companies participate actively in the exploration phase and contribute expertise and capital. The NPD’s analysis of the part played by the various company constellations shows that they have all made a positive contribution to exploration, resource growth and value creation.

Getting more companies involved in the exploration phase has also increased the number of operators for discoveries and fields. While eight companies were operators for producing fields in 2000, this had risen to 15 in 2015.

 

Chapter 6: Geological mapping

Geological mapping by the NPD in unopened and frontier areas of the NCS helps to enhance understanding of their geology and to expand data coverage. Funds for this work are provided over the government budget.

 

Resource accounts at 31 December 2015

The NPD’s resource accounts provide an overview of total expected recoverable petroleum resources, including those remaining to be discovered, and form the basis for the production forecast in figure 1.4. They incorporate resources from the whole NCS, with the exception of the new Barents North-East area defined by the boundary treaty between Norway and Russia.

These accounts build on data reported by the operators as well as the NPD’s own assessments of fields and discoveries and its estimate of undiscovered resources. They are based on the NPD’s resource classification. All petroleum quantities can be related to a project, and the classification reflects the maturity of each project. The various resource classes are presented in figure 1.5, with arrows showing how the projects can be matured. Further details can found at www.npd.no.

 

Figure 1.5 Classification of resources by the NPD.

Figure 1.5 Classification of resources by the NPD.

 

At 31 December 2015, total recoverable resources were estimated to lie within an uncertainty range (P10 and P90) from 12.2 to 17.2 billion scm oe, with 14.2 billion scm oe representing the expected value (figure 1.6). The amount sold and delivered totals 6.6 billion scm oe (47 per cent). Roughly 54 per cent of total recoverable resources have been produced so far if the lower part of the uncertainty range is applied, but only 38 per cent with the upper part.

Remaining resources are estimated to be 7.6 billion scm oe, including 3.1 billion scm oe (41 per cent) as reserves (table 1.1). Contingent resources in fields and discoveries, including possible future measures for improving recovery, represent 20 per cent of expected remaining resources.

The undiscovered portion represents about 20 per cent of expected total resources on the NCS, and 38 per cent of expected remaining resources.

 

Table 1.1 Resources accounts at 31 December 2015.

Table 1.1 Resources accounts at 31 December 2015.

 

Resource account

 

Figure 1.6 Distribution of total recoverable resources and uncertainty in the estimates at 31 December 2015.

Figure 1.6 Distribution of total recoverable resources and uncertainty in the estimates at 31 December 2015.

 

The first NCS map, 1965.

The first NCS map, 1965.

 

Somewhat younger versions of two NPD geologists, Bernt Egeland (left) and Harald Brekke (centre). Svein Johnsen, on the right, is no longer with the NPD.

Somewhat younger versions of two NPD geologists, Bernt Egeland (left) and Harald Brekke (centre). Svein Johnsen, on the right, is no longer with the NPD.