Low oil prices have given rise to considerable challenges for the petroleum industry. Significant remaining resources, combined with cost reductions and improved efficiency, can ensure continued high activity and future profitability.
The Norwegian Contiential Shelf (NCS) has had some positive news in 2015, despite the negative trends. Several new wells and good regularity on the fields have delivered an increase in oil production for the second consecutive year, and it will remain high in the years to come. A new gas sales record was also set as a result of higher demand from Europe.
There was a substantial drop in revenues, but the industry continues to make a strong contribution toward maintaining Norway's general welfare level.
"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," says Norwegian Petroleum Directorate Director General Bente Nyland.
"It is also gratifying to see that the industry has invested substantial effort in increasing efficiency. This work is starting to materialise in the form of lower costs."
Eighty-two fields were in operation at the end of 2015, compared with 51 ten years ago. This illustrates the enormous development activity that has taken place in recent years. Never before have more wells been drilled than in 2015, when exploration wells are included. Fifty-six exploration wells were spudded; 11 discoveries were made in the North Sea, and six in the Norwegian Sea. However, most of these discoveries were minor.
From a record level in 2013 and 2014, investments fell by about 16 per cent from 2014, to just under NOK 150 billion. They are expected to continue their decline going forward, followed by a moderate increase from 2019. The NPD estimates that total costs will be well in excess of NOK 200 billion per year in the next few years.
The authorities approved four plans for development and operation (PDOs), compared with just one in 2014. These four have led to an increase in the reserves estimate on the Norwegian Shelf – despite the fact that around 230 million Sm3 oil equivalents of the reserves were produced.
Four new fields came on stream in 2015. Six fields are currently being developed in the North Sea, two in the Norwegian Sea and one in the Barents Sea. The NPD expects to receive development plans for three new fields this year.
"Activity will remain high in the years to come, in spite of the decline since 2014. Therefore, it is important that the companies make wise decisions and keep a long-term perspective," says Bente Nyland.
More than half of the resources on the Shelf have yet to be produced. The Director General is concerned that sinking oil prices will mean that measures will not be implemented, and resources will be left in the ground.
"We see a tendency for the companies to prioritise short-term earnings rather than long-term value creation," says Nyland.
The Norwegian Petroleum Directorate expects the industry to make decisions that will secure these assets in the years to come, and that it accelerates efforts to implement measures that can reduce costs and boost efficiency, for example through the use of new technology.
"Reduced costs mean greater profitability. This can help pave the way and make it easier to develop more discoveries," concludes the Director General.