Down But Not Out

As the industry watches and waits, wondering if we’ve seen the price of oil bottom out, it’s good to remind ourselves that much still remains to be done on the Norwegian Continental Shelf (NCS).

Traditionally, two January events help to check the pulse of the NCS. The first is the presentation by the Norwegian Petroleum Directorate (NPD) of its annual report, “The Shelf”. The second is the announcement of the Awards in Pre-defined Areas (APA), in which licenses are offered in mature areas that are close to existing and planned infrastructure.

In her presentation of “The Shelf”, NPD Director General Bente Nyland said, “Even in a demanding year, it’s good to see that the oil and gas industry is still the country’s largest, with total export values reaching well over NOK 400 billion.”

Likewise, in 2015, NCS investments were not quite NOK 150 billion – a 16% fall from the record levels of 2013 and 2014. The NPD foresees that investments on the NCS through 2020 will remain lower than the 2014 peak, but they are expected to be healthier than those of 2010 when the industry was recovering from the “credit crisis”.

During 2015, four new fields began production, and nine fields began being developed in the North Sea, Norwegian Sea and Barents Sea. The NPD also expects to see development plans for three new fields in 2016.

The NPD report reminds us that companies must continue to take a long-term view, and they forecast production levels to remain relatively steady over the next five years. Moreover, the Directorate estimates that nearly 3 billion standard cubic metres of oil equivalent remain to be discovered on the NCS. Add to that the know reserves, and we see that less than half of the total estimated resources have been tapped.

More telling from an industry perspective is the interest in mature areas of the NCS. The APA 2015 was among the largest of these annual licensing rounds.

“Access to prospective exploration acreage is a central element in the Government’s policies and vital for the long-term activity on the Norwegian Continental Shelf. It is a very positive sign that the oil companies show such high interest in our most well-known areas, this enables me to offer awards in 56 exploration licenses,” said Norway’s Minister of Petroleum and Energy, Tord Lien, in the ministry’s award announcement.

The ministry acknowledges that discovery sizes may be smaller in these areas, although existing infrastructure makes them more attractive. But it’s also good to remember that the Johan Sverdrup field discovery in 2010 – the fifth largest in the history of the NCS – was a direct result of APA licensing.

It’s not too many months until the 23rd licensing round awards will be announced in midyear. At stake are 57 announced blocks or parts of blocks – 3 in the Norwegian Sea and 54 in the Barents Sea. Of the Barents Sea blocks, 34 are in the newly opened areas, and these blocks have received a great amount of interest.

While the total number of applicants is lower for the 23rd round compared to the 22nd round, from 36 down to 26, mostly large and medium-sized companies have applied. There’s no great surprise in those numbers – heavy hitters are needed to develop the required infrastructure in these frontier areas.

While costs have begun to come down – as the industry has responded to the price’s downward slide – no one can say for certain when a sustained, long-term rise in oil price will begin. We may or may not have already seen the bottom, but everyone involved in the industry knows that cycle will turn upwards. It’s not a matter of if, but of when.