Increased spending on producing fields could boost Norway’s ranking to fifth when it comes to expenditures, according to an analyst. The prediction comes as companies step up activity in the country.
Upstream development spending in Norway is set to increase to US $25 billion this year, a rise of more than 30% compared to the previous year, reflecting the continuing resurgence of the country’s mature offshore sector.
Of that figure, around two-thirds will be spent on increasing recovery from producing fields, Wood Mackenzie (Wood Mac) says. The analyst estimates the rise will rank Norway fifth in the world behind the United States, Russia, Canada, and Australia in terms of expenditure. Furthermore, development capex is estimated to reach almost $30 billion in 2015, which would ensure Norway’s place in the top five as an investment destination over this period.
The company also highlighted that the introduction of exploration incentives in Norway – namely the mature licensing rounds and a 78% exploration cost refund for companies – have been a big success in increasing exploration and delivering value to the government and the companies involved.
Ross Cassidy, head of NW Europe upstream research for Wood Mackenzie, said Norway remained a core country within company portfolios for all the existing players, offering good prospects to create value through increased oil recovery in producing fields, satellite tie-backs to production hubs and exploration in mature and frontier areas.
“We estimate that around two-thirds of the $25 billion development expenditure in 2012 will be spent on increasing recovery from producing fields, and the remaining third on new field developments,” he said. “Over the next three years, we estimate over $82 billion will be invested in Norway’s upstream sector. Statoil and State’s Direct Financial Interest (SDFI) will invest around $40 billion combined, around half of the total investment in this period.”
Wood Mac’s report “A review of the Norwegian corporate landscape,” highlights that Norway remains an attractive investment destination for oil companies of all sizes. Wood Mac values the Norwegian upstream sector at $216 billion (NOK 1.3 trillion). For IOCs, this places it in the top 10 countries by remaining value. The majors still have a strong foothold in Norway, holding 22% of remaining reserves and accounting for approximately 24% of total production. Norway is a core part of the global upstream portfolio of Total (8% of value), ConocoPhillips (7%), and Eni (5%).
Production estimates to 2017 show output from the majors as a group that is expected to decline (excluding Statoil), although Total, Eni, and BP are forecast to increase production. The majors are set to invest around $26 billion over the next three years, around 32% of total development expenditure. A large portion of this is being spent on giant, legacy fields such as Ekofisk and Troll, Wood Mac added.
Statoil and SDFI remain dominant players with a combined share of 60% of the total value. “Statoil holds around 34% of Norway’s remaining reserves and accounts for around 30% of total Norwegian production,” Cassidy said.
“The company remains the most active explorer on the Norwegian Continental Shelf (NCS), and in recent years has rejuvenated its portfolio with world-class exploration success at Johan Sverdrup and Skrugard/Havis.”
Regarding the exploration incentives, Malcolm Dickson, NW Europe upstream analyst for Wood Mac, said, “Exploration is a hot topic in Norway, and interest is higher than ever. But increased activity levels have not come easily, especially as Norway has had to compete with emerging exploration provinces as an investment destination. The government has been proactive in introducing several catalysts to boost exploration.
“The first key change was the mature acreage licensing round system brought in to ensure that mature areas are fully exploited. This was followed by an exploration tax refund which reimburses 78% of the exploration cost for companies, regardless of [the] tax-paying position. There has been much debate on the effectiveness of these measures, but our analysis shows [these] have been very successful.”
The analysts’ comparison of the mature exploration rounds, introduced in 1999, against frontier rounds reveals:
• The number of companies exploring on the NCS has more than doubled since the introduction of the mature acreage licensing round system, with many attracted by the exploration terms;
• Drilling has increased as a result, and the mature rounds have produced an average of 17 wells per round, whereas the frontier rounds averaged 11 wells per round; and
• Mature rounds have accounted for 51% of total commercial reserves, or 3.2 Bboe, since being introduced in 1999. These also have delivered substantial average discovery size of 87 million boe.
The incentives introduced over the past 10 years had been controversial, Dickson said. “However our analysis suggests the exploration cost rebate has created substantial value. We estimate $4 billion has been created by qualifying explorers, which accounts for around 20% of total value created. Looking only at small companies, regardless of tax-paying position, the share increases to 35%. Given that Statoil/Hydro was responsible for nearly 40% of the rest of the value, this is impressive.”
Dickson went on to describe Norway’s exploration future as bright, and that Wood Mac expects the mature areas to continue to deliver “some sizeable discoveries in the region of 100 MMboe. Giant discoveries are more likely to be found in the higher risk frontier areas in northern Norway. There is also potential for prospective new areas to be opened up in the coming years, with most of the interest centerd around East Barents and the areas surrounding Lofoten.”
Contact the author, Mark Thomas, at mthomas@hartenergy.com.
