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. A greater number of companies involved in the exploration phase has also increased the number of operators for discoveries and fields.
The many mergers between the big oil companies in the late 1990s and around 2000 left fewer and larger international players. At the same time, the NCS – and particularly the North Sea – had developed into a more mature petroleum province. The resulting decline in discovery size meant challenges were different from before. Opportunities in mature areas of the NCS were of limited interest to several of the big companies.
The government implemented a number of measures both to improve predictability in the licensing process and to widen company participation. These included prequalification, the APA scheme and refunding the tax value of exploration expenses (see the box). Combined with rising oil prices, these steps have contributed to more participants and greater diversity. Many small and medium-sized oil and gas companies and European gas/power enterprises became established on the NCS. So did a number of new Norwegian undertakings. The total number of players almost doubled from 2002 to 2007 (figure 5.1).* Fifty-three companies were involved on the NCS at 31 December 2015.
Figure 5.1 Development in the number of companies on the NCS since 2000.
Five different company categories
The NPD has divided players on the NCS from 1965 to 31 December 2015 into five categories: large Norwegian companies, majors, medium-sized companies, European gas/power companies and small companies.
Table 3.1 presents the breakdown of players active as licensees on the NCS at 31 December 2015. Petoro is defined as a large Norwegian company, even though it is not an oil company in the conventional sense but acts as the licensee on behalf of the government. Allocation to the various categories is based on a combination of size, nationality and phase (strategy). Size is defined by the enterprise’s market value on the stock exchange. The transfer of companies between different categories has been preserved historically, since they mainly change type as a result of mergers. Over the past 15 years, only Det Norske has changed company category on the basis of discoveries which have increased its market value on the stock exchange.
Table 5.1 Categorisation of licensees on the NCS at 31 December 2015.
Large Norwegian and medium-sized companies hold the most production licences and acreage on the NCS (figure 5.2 and 5.3). However, large Norwegian companies have reduced their share of total production licences and roughly halved their proportion of licensed acreage since 2005. Mediumsized companies have increased their share of both production licences and acreage over the same period. The increase since 2012 partly reflects the reclassification of Det Norske from small to medium-sized company. Categorisation of licensees on the NCS at 31 December 2015.
Figure 5.2 Licences by the various company categories in 2000-15.
Figure 5.3 Acreage in square kilometres by the various company categories in 2000-15.
Acquisition and divestment of interests
A well-functioning secondary market for trading in licence interests is important for achieving efficient exploration of the resource potential on the NCS.
In line with the rise in the number of companies and licences, and with oil price developments, the secondary market for interests has expanded substantially since 2000 (figure 5.4).
Small and medium-sized companies are the most active participants in the secondary market. Large Norwegian companies and majors are net sellers (figure 5.5), while the other categories are net buyers.
Figure 5.4 Acquisition and divestment of interests in production licences in 2000-15 by company category.
Figure 5.5 Acquisition and divestment of interests in 2000-15 by company category.
Exploration activity and results
Spending and the number of wells can say something about how actively companies participate in exploration, while resource growth and profitability provide an indication of their performance on the NCS.
However, exploration activity and results are also affected by where the companies are exploring on the NCS and the prospectivity of the acreage awarded. Comparing players active in mature parts with those engaged in frontier areas is difficult, because the latter acreage offers a lower average probability of success and a higher probability of making big discoveries than the former. Where companies explore reflects both their own strategy and government licensing policy.
Exploration results such as resource growth and profitability are measurable and can say something about the commitment of the companies. However, they do not pick up company contributions in the form of good exploration concepts and active participation in production licences.
Large Norwegian and medium-sized companies have been the most active explorers during the period, measured by the amount invested and the number of wildcats drilled both as licensees and operators (figures 5.6, 5.7 and 5.8). These players have also held the most production licences and acreage in recent years.
Figure 5.6 Investment in exploration over the past five years by company category.
Number of wildcats
Figure 5.7 Wildcats drilled in 2010-15 by company category and licensees.
Figure 5.8 Wildcats drilled in 2010-15 by company category and operator.
During the first half of the 2000s, large Norwegian companies and majors accounted for the biggest investment in exploration. Spending on this activity has increased substantially since 2005, and other company categories have increased their share of total investment. Medium-sized companies have accounted for the biggest proportion of exploration spending in recent years.
Large Norwegian and medium-sized companies proved the largest proportion of resources in 2010-15, both as licensees and as operators (figures 5.9, 5.10 and 5.11).
Figur 5.9 Accumulated resource growth in 2010-14 by company category. Excludes discoveries not currently expected to be developed (RC 6).
Figure 5.10 Resource growth per region in 2010-15 by company category, licensees.
Figure 5.11 Resource growth per region in 2010-15 by company category, operators.
These players are responsible for the largest share of resource growth through their participation in Johan Sverdrup. Maria and the 6406/12-3S (Pil) discovery represent the most significant contribution to growth from small companies. Similarly, holdings in 7220/8-1 Johan Castberg have contributed significantly to resource growth from majors. The 35/9-7 (Skarfjell) and 7220/11-1 (Alta) discoveries have played a corresponding role for European gas/power companies.
At 31 December 2015, large Norwegian companies and majors owned about 85 per cent of remaining reserves – in other words, resources covered by a development decision – and about 60 per cent of resources yet to be sanctioned for development. The player picture for resources in discoveries is more balanced than for remaining reserves (figure 5.12).
Figure 5.12 Remaining reserves and resources in discoveries on the NCS at 31 December 2015, broken down by oil and gas.
Exploration over the past 15 years has contributed substantial value to society, according to the NPD’s analysis of the fullcycle profitability of this activity during the period as described in chapter 4.
Profitability has been calculated for exploration in 2000-14. Broken down by company category, the analysis shows that its value has been particularly high for large Norwegian and medium-sized companies (figure 5.13). That reflects the big contribution from Johan Sverdrup. Exploration has paid off for all company categories.
Figure 5.13 Profitability of exploration in 2000-14 by company category.
Player picture in development and operation phases Interests were held in discoveries and fields by 45 of the 53 companies on the NCS in 2015. The number of licensees with such holdings has increased since 2000 (figure 5.14).
Figure 5.14 Licensees in discoveries and fields on stream.
In the latter year, 27 licensees had interests in discoveries and fields. Growth from 2005 to 2010 occurred primarily among small and European gas/power companies. From 2010 until 1 January 2015, the principal expansion was among medium-sized companies. Before the big growth in numbers between 2005 and 2010, virtually all the players on the NCS had holdings in fields or discoveries. Since then, this proportion has fallen to about 80 per cent.
Thirty-one of 53 companies were licensees in fields in 2015 (figure 5.15). While about 90 per cent of the players in 2000 held such interests, that proportion was roughly 55 per cent in 2015. The reasons could be that a majority of the newer participants on the NCS define themselves as exploration companies, and that it has been easier to make new discoveries than to acquire interests in established fields.
Figure 5.15 Medium-sized companies
Operators of discoveries and fields
At 31 December 2015, 22 of 45 licensees in discoveries and fields were also operators. Fifteen were operators for fields on stream. That represents almost a doubling over the past 15 years. Many medium-sized and European gas/power companies established themselves as operators in 2009-13. The number of operators has been stable since 2013 (figure 5.16).
The growth in operator numbers partly reflects Statoil’s transfer of operatorships to others as well as field developments operated by medium-sized and European gas/power companies.
Figure 5.16 Operators with fields on stream on the NCS.
Who develops discoveries?
The graphs presents changes in the type of company operating field developments between three periods.
Majors predominated in the first of these. Hydro and Statoil later dominated development activity before and after 2000. More companies now have responsibility for development projects. The latest period also includes planned developments.
Adjustments to operating parameters
A number of measures were adopted in the first half of the 2000s to stimulate competition and increase company diversity on the NCS. Three changes to operating parameters have been particularly important.
- The prequalification scheme was established to offer companies an evaluation of their suitability for participation on the NCS before they devoted possible resources to assessing specific commercial opportunities. Great interest in prequalification has been displayed since it was introduced, and a steady trickle of companies are still seeking such advance assessment.
- The APA scheme, combined with adjustments to the design of work programmes, provides companies with a regular supply of exploration acreage and ensures that exploration is pursued actively. In this way, the arrangement also facilitates efficient resource use in the oil companies and makes sure that previously relinquished acreage becomes available to players with new ideas. Areas awarded earlier will thereby also be subject to reassessment.
- Refunding the tax value of exploration expenses means that the companies can choose whether to have 78 per cent of their exploration costs refunded the following year or deducted from their tax liability. The scheme was introduced to ensure equal tax treatment of exploration costs, regardless of whether a company already has taxable earnings. That in turn reduces possible entry barriers for new players and facilitates profitable exploration. Established companies with taxable earnings can continuously deduct exploration costs and thereby reduce their tax payments by the 78 per cent figure. Alternatively, players without such earnings can carry the loss forward with an interest supplement (or have the tax value of the loss refunded when ceasing activity on the NCS). This scheme means that small companies which have yet to acquire taxable earnings can reduce tied-up capital and thereby improve cash flow.