Oil and gas production on the Norwegian shelf is high. The adjustment process has been extensive, but the cost reductions implemented by the industry will lay the foundation for profitable activity for many years to come.
Oil production increased for the third consecutive year in 2016, and gas production was at the same level as the previous year, which was a record year for production. The high level is in part due to good regularity on the fields, and the fact that various efficiency measures have led to substantial reductions in operating and exploration costs.
“The foundation has been laid for increased profitability in both existing and new projects. This is essential in order to maintain a high activity level for upcoming years,” says Director General Bente Nyland. She believes that cost reductions of 30 to 50 per cent in development projects should mean that companies will view more projects as being profitable.
“We must prevent the focus on short-term profits from coming at the expense of long-term value creation for society,” she says.
Investments on the Norwegian shelf in 2016 amounted to NOK 135 billion, about NOK 50 billion less than the peak years 2013 and 2014. Nyland predicts that the current year and next year will also be challenging for the industry, but investments are then expected to increase again. A number of new development projects are undergoing evaluation, and an extensive portfolio of new field developments will be continued and developed over the next few years.
Five Plans for Development and Operation (PDO) were submitted in 2016, with a total investment value of NOK 23 billion. Seven development projects with a total value of NOK 233 billion are currently ongoing.
After several years of high exploration activity, 36 exploration wells were drilled in 2016, 20 fewer than the preceding year. Eighteen discoveries were made, one more than in 2015. Exploration activity was highest in the North Sea, where a total of 14 discoveries were made. Two discoveries were made in both in the Norwegian Sea and the Barents Sea.
“Many of the discoveries are small, but most are located near existing infrastructure. This means that they can quickly become profitable developments if they are tied in to operational fields and facilities,” says Nyland.
According to the Director General, there is a great deal of uncertainty associated with exploration activity going forward. This depends on new discoveries being followed up, and presumes that the industry will be awarded new acreage for exploration.
“It is very important to maintain exploration activity at a high level in order to maintain stable production in the future,” she says.
Despite the decline in the number of exploration wells, the number of applications and awards in the most recent licensing rounds demonstrates that the interest in the Norwegian shelf is still high. Fifty-six production licences were awarded in APA 2015, while ten were awarded in the 23rd licensing round. All awards in the 23rd round were located in the Barents Sea, and three are located in the recently opened area in the southeastern Barents Sea. The first exploration well in this area will be drilled as early as this year.
The probability of making new big discoveries is also highest in this area, according to Bente Nyland.
“New surveys also indicate significant opportunities in areas that are not open for petroleum activities,” she concludes.
The Shelf in 2016