Chapter 6: The NPDs role
The regulatory framework for resource management on the Norwegian continental shelf (NCS) aim to provide incentives for the companies to maximise the available value on behalf of society. Nevertheless, cases may exist where the companies – for various reasons – prefer solutions other than the one which ensures the greatest overall value.
In such circumstances, the NPD’s job is to work for the solution which yields the greatest economic value.
The NPD works to ensure that projects are designed to realise the total value potential – even in challenging market conditions
Coordination and area assessments
Coordination can help to cut costs and improve recovery. In that way, coordination and area solutions can contribute to achieving profitability for several deposits which are not commercial on their own. Pursuant to section 10-7 of the Petroleum Act, the licensees have a duty to seek agreement in cases where coordination of deposits is clearly the rational approach.
Taking an integrated view and thinking across production licences is an integral part of the NPD’s role. Its access to information from all production licences qualifies it to identify possible coordination gains.
Its NCS-wide perspective allows the NPD to help identify opportunities for coordination across production licences held by different groups of licensees. (Artist’s impression: Aker Solutions
In many cases, licensees themselves will see the value of a coordination. But the size of this value can vary between production licences. The interest of companies in coordinating their operations may therefore differ. Willingness to share information could also depend on the financial interests of the companies. Ensuring that decisions are based on the right information is an important part of the NPD’s work.
Flexible development solutions
Flexibility for handling additional production could help to increase value. A project which has the capacity to cope with other deposits may be able to reduce overall development costs in the area. Moreover, history has shown that most fields on the NCS have produced more and for longer than expected when they were initially developed.
Spare capacity in established infrastructure may reduce the need for it in a new development. The NPD’s area perspective and access to information can help to identify existing availability. It is able to apply such insight in working for more effective utilisation of available capacity.
Technological advances can create value through improved recovery or reduced costs. The companies must be willing to exploit the opportunities provided by such technology and thereby adopt new solutions. Investment in technological development may be insufficient from the perspective of society
An investor does not necessarily value the possible gain which falls to other players. Similarly, companies may undervalue the benefit of applying available technology. Those who test new technology probably give little weight to the possibility that other players can also learn from the results.
The NPD works to encourage research and development (R&D). As part of these efforts, it coordinates innovation work which cuts across companies and production licences
Windows of opportunity
Many of the companies on the NCS have large portfolios of future projects. It is important that they get to grips at the right time with those which have a critical window of opportunity.
A spending decision could mean that another investment is put on hold. Understanding how a postponement affects the project’s contribution to value creation will be important
In some circumstances, conditions could mean that the value of a project declines – and at worst disappears – in the event of a
A number of projects can be delayed without a significant effect on their economic potential. In other cases, conditions could mean that the value of a project declines – and at worst disappears – in the event of a postponement. Recovery could face a critical window of opportunity, for example, if plans call for the resources to be produced via existing infrastructure with a limited remaining commercial life.
In mature areas of the NCS, new developments are usually tied back to existing facilities. As such infrastructure ages, the problem of a critical time frame is set to become increasingly significant. An important job for the NPD is to help ensure that projects are implemented before their window of opportunity Closes.
Developed in time
Trestakk is to be tied back to the Åsgard A production ship. (Artist’s impression: Statoil)
Trestakk was discovered in Statoil during 1986. Although this discovery had been assessed as commercial, its development was threatened by postponed investment. The government considered the project to have a critical window of opportunity, and was a driving force in ensuring progress..
READ THE STORY: Trestakk: project with a critical time frame