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12/10/2011 Today, 12 October, the Norwegian Petroleum Directorate (NPD) will publish its report Petroleum Resources on the Norwegian continental shelf 2011.
The NPD issues the resource report every second year. The 2011 resource report provides an updated overview of the resources and activities on the Norwegian shelf and highlights important challenges for the Norwegian petroleum industry.
Just before summer, the Minister of Petroleum and Energy presented Storting White Paper No. 28 – An industry for the future – Norway’s petroleum activities. The report presented a proactive vision of the future for the Norwegian petroleum activities. The report indicates that committed efforts are needed in four areas in order to realise this vision:
A number of major discoveries were made in the Barents Sea and the North Sea this year. These discoveries confirm that, so far, 2011 has been one of the most interesting years on the Norwegian shelf for quite some time, and this also reinforces the view of the future as it is presented in the Storting White Paper.
These new discoveries are not included in the statistics presented in the report, as all resource figures are updated and reported as of 31 December 2010.
The major oil discoveries in the North Sea prove that the APA scheme (awards in predefined areas) and the changes made in exploration policy are yielding results. Lundin’s 16/2-6 (”Avaldsnes”) discovery was made in an area awarded in APA 2009, and Statoil’s 16/2-8 (”Aldous Major South”) discovery was made in an area awarded in the North Sea Round in 2000 (precursor to the APA scheme).
The discoveries made in 2011 confirm what the NPD has been saying for quite some time now – specifically, that significant undiscovered resources still remain on the Norwegian shelf. The remaining resources can form the basis for considerable production and value creation for many decades to come.
The NPD expects future oil and gas production to remain at current levels for the next ten years, in spite of a gradual decline in production from the major fields. Measures to increase recovery and starting up production from discoveries will contribute to maintaining production. After 2020, production from undiscovered resources will account for an increasing share of the expected production.
The uncertainty attached to the forecast for the next few years is largely linked to production of the reserves. There is also uncertainty regarding when discoveries will be developed and put into production, and how much they will produce.
Over the longer term, the uncertainty increases due to the fact that undiscovered resources account for a gradually larger share of expected production. Obviously, this uncertainty is greatest in the areas that are not yet open for petroleum activity. There is also uncertainty surrounding what future technological development can contribute to realise the resource base on the Norwegian shelf.
A natural assumption is that the undiscovered resources in the North Sea will grow as a consequence of the 16/2-6 (”Avaldsnes”) and 16/2-8 (”Aldous Major South”) discoveries. The discovery success rate on the Norwegian shelf is very high in an international context. Progressive exploration, technological development and new knowledge increase the likelihood of new discoveries. In 1980, discoveries were made in around 25 per cent of the exploration wells. In 2010, this figure was 55 per cent.
However, the average size of the discoveries that are made is much smaller than before. International experience shows that the largest discoveries are made early in the exploration phase of a new petroleum province, and that discovery size gradually decreases. This is also the case on the Norwegian shelf. However, 16/2-6 (”Avaldsnes”) and 16/2-8 (”Aldous Major South”) show that there will always be exceptions.
Since 1997, annual resource growth has been lower than annual production levels. However, in 2011, resource growth from discoveries will again exceed production.
In the autumn of 2010, the NPD analysed exploration profitability in the period from 2000-2010. Even though the discoveries made on the Norwegian shelf during this period were relatively small and exploration costs were high, the analysis showed that this exploration activity generated substantial value, both for the companies and for the Norwegian society.
Statoil (including the former Hydro) is responsible for more than half of the values created through exploration in the last ten years. The analysis also shows that the “new companies”, i.e. companies that have been awarded their first production licence after 1999, have made considerable contributions. In the last two years, new companies have accounted for around half of the value creation from exploration.
Resources in discoveries that have not been approved for development as of 31 December 2010 amount to five per cent of the total expected resources on the Norwegian shelf, and nine per cent of the remaining resources.
History proves that most discoveries are developed, but it may take some time. The average lead time, i.e. from when a discovery is made until production starts, is twelve years. Lead time is normally longer for gas discoveries than for oil discoveries. Smaller discoveries commonly require access to available capacity in process and transport facilities in order to be profitable.
Since 2005, 25 of 30 developments have entailed subsea templates. These solutions have helped boost profitability, particularly for small discoveries and discoveries in deep water. Production from subsea wells surpassed production from wells on fixed facilities in 2010. This trend will probably continue, as discoveries become smaller.
On average, according to current plans, more than half of the originally existing oil will remain in the reservoirs. It is therefore important to continue work to improve recovery from today’s fields. Injection of water and gas has made a substantial contribution towards the high oil recovery rate on the Norwegian shelf. Injection is particularly important in increasing oil recovery. In many cases, gas injection yields better oil drainage than water injection.
After 2002, more gas has been injected in subsea wells than in wells on fixed facilities. Since 2004, total gas injection has been reduced. The volume of water injected for pressure support has been reduced after 2004. This is due to several factors, such as major reductions on Gullfaks and Draugen, and the late phase project on Statfjord.
Some of the decline in injection can be attributed to shut-in injection wells. This can be part of the drainage strategy on some fields, while on other fields injection wells may be shut in for longer periods of time due to lack of maintenance. Injection wells constitute a long-term recovery measure that is important for responsible resource management and long-term value creation. Drilling and maintaining injection wells is therefore a priority.
The licensees themselves have identified drilling and wells as the most effective short-term means of extracting more oil from fields in operation. Drilling targets are shrinking, water production is increasing, which means that less oil is produced per well. Consequently, more and more wells will have to be drilled to extract a given volume of oil.
Fewer development wells are drilled now than around the year 2000, and plans for drilling new wells are being postponed. We could risk losing reserves if this trend continues.
In addition to injection and drilling of wells, it is important that advanced injection methods and new technology are developed and qualified through field tests. This can further improve recovery.
The NPD is concerned by the trend towards delaying or cancelling many technology projects and pilot tests. Continued focus on research, development and implementation of new technology is decisive for future value creation from the Norwegian shelf.
Access to human resources and talent is another critical factor. Therefore, it is important that young people see that the industry has a long-term perspective, and is worthy of their commitment. In these terms, the new discoveries may well have helped dispel the notion that petroleum is a sunset industry!
Courage is also a key factor in maintaining a high level of value creation. Extracting maximum value from fields already in operation while the infrastructure in still in place, is vital. In the past, we have seen that close follow-up by the authorities has proved beneficial when important decisions must be made. This will also be the case in the years to come.
At the same time, it is crucial that we have licensees who combine the willingness to take risks with a long-term perspective, professional expertise and creativity, and thus contribute to expanding the boundaries of the achievable.
An English version of the report will be available later this autumn.