New brooms sweep cleaner

07/05/2007 A growing number of incomers on the NCS aim to improve the recovery of its oil and gas resources. After securing major licence awards in recent years, several of these companies are poised to spud exploration wells.

Text: Ina Gundersen. Photo: Jan Inge Haga

Energy, concentration, commitment and enthus­iasm characterise training sessions at the Stavanger Gymnastics Society – and the new players on the NCS.

Energy, concentration, commitment and enthus­iasm characterise training sessions at the Stavanger Gymnastics Society – and the new players on the NCS.

The player composition on the NCS has been substantially changed in recent years through the arrival of many small and medium-sized companies.

 “Very interesting developments are likely over the next couple of years,” says NPD director Bente Nyland. “It usually takes at least two-three years from a licence award until drilling begins.

“The results of the new policy will become fully visible during 2007. We’ll now be able to see whether these new players help to realise the resource potential.”

She notes that the basic view is that much oil and gas in mature areas could be lost if the NCS only has large companies which are interested primarily in making big discoveries.

“The exploration rate has been too low in recent years. By attracting more smaller participants, we’ll be better able to recover time-critical and medium-sized resources.

“We’re primarily looking for middling independent companies with expertise and capital. It’s important that players can challenge each other with different approaches and expertise.”

A number of medium-sized companies active on the UK continental shelf but not on the NCS have contributed to new activity and value creation on the British side.

The Norwegian government has been working to persuade these enterprises to set up shop on the other side of the North Sea and help boost offshore activity.

“Exploration usually moves up or down with the oil price,” observes NPD principal engineer Sissel Eriksen. “This hasn’t happened to the same extent in recent years.

“A low level of exploration and consequently few discoveries have meant that it hasn’t been possible to replace the volume of oil and gas production.”

Various measures adopted by the Norwegian authorities have proved very successful. They include a big series of major licensing rounds with a record number of awards.

“The prequalification scheme for new companies has created predict­ability,” says Ms Eriksen. “The tax system has also been modified to make entry easier for them.

“In addition, the government has put pressure on existing players to relinquish acreage they’re not using and got tougher over work programmes. That helps to boost exploration and avoids areas lying fallow.”

The number of companies prequalifying for the NCS gives an indication of interest in these waters. Since 2000, 42 have taken advantage of this opportunity.

The annual awards in predefined areas (APA) have increased in terms both of applicants and of licences and acreage awarded every year since they were instituted in 2003.

In Ms Nyland’s view, the incom­ing companies have focused attention of areas which previously tended to be overlooked.

“Competition over acreage is also increasing,” she adds. “There’s a big potential for finding more modest deposits close to infrastructure in mature areas of the North, Norwegian and Barents Seas, which explains the big interest in explor­ing there.”

Licence awards include require­ments for rapid exploration and progress in the work of delivering a plan for development and operation of possible resources.

“The aim is to achieve efficient exploration for oil and gas in mature parts of the NCS,” Ms Nyland explains. “That’s important for utilising capacity in existing and planned production and transport facilities.”

Farming in and out of licences on the NCS has expanded sharply in recent years, from about 10 such transactions in 1990 to an annual level of 60-70.
Deals totalled 388 from 1999 to 2005, with new companies on the NCS accounting for almost 30 per cent. So such incomers also boost competition over acreage. However, Ms Eriksen emphasises that the new player picture also presents challenges.

“Licensee composition is more complex than before, which increases the regulatory resources requir­ed. Higher costs and shortages of rigs and expertise are a challenge for everyone.” 

This voluntary scheme was introduced so that companies could have their suitability for participation on the NCS.
 Several prequalified companies have secured production licences, with 15 of 34 awards in predefined areas (APA) for 2003 going to new players. This proportion was 38 of 79 in 2004, 52 of 74 in 2005 and 79 of 122 in 2006.

Tax regime
The Petroleum Taxation Act was amended in 2004 to allow oil and gas companies without taxable income to request a refund of the tax value from the government. That corresponds to 78 per cent of exploration costs.

Work programme
When companies are awarded a production licence on the NCS, they undertake to explore the acreage concerned.

The provisions on the area fee were amended from 1 January 2007. This is now waived for acreage where exploration or production are under way, but has been increased for inactive areas.



Updated: 14/12/2009