Barents spotlight

The Snøhvit gas field produces back to the Hammerfest LNG plant at Melkøya.  Photo from Statoil/ Harald Pettersen.

With a new phase in Barents Sea developments on the way, plus strong drilling activity, the region is primed for growth. Espen Erlingsen, of Rystad, explains.

The Norwegian sector of the Barents Sea is one of the key development areas for offshore Europe. Recent oil discoveries have proven the commerciality of this province and Rystad Energy expects investments and production to grow over the coming years.

After being on a downward trend for more than 10 years, Western European production started to grow again in 2014. Since then, the production has increased every year and, for 2017, the total liquid production is expected to reach 3.3 MMb/d, up 400,000 b/d from 2013. Over the next 10 years, Rystad Energy expects that the production will continue to increase and surpass 3.5 MMb+/d in 2025. Figure 1 shows that the main growth is expected to come from the Norwegian part of the Barents Sea.

Left: Figure 1 - Trend and forecast total Offshore Western Europe liquid production by country, kboe/d. Right: Key Barents Sea projects  Source: Rystad Energy UCube.  *The breakeven price is forward looking, excluding historical costs

For a long time, the Barents Sea was a gas province with production coming from the Snøhvit field. Snøhvit, discovered in the early 1980s, was the first Barents Sea discovery. Due to the remote location of the gas and the difficulties to get it to market, almost 30 years passed before this field started commercial production in 2007. Production from the field is exported as LNG and there were problems with the liquefaction train, which kept production low for several years. The troubling past seems to be behind the project and, in 2016, the field achieved the highest production to date, exporting around 4.5 million tons of LNG.

The first oil producing field in the Barents Sea was Goliat. The Eni-operated field includes 200 MMboe (100% oil) of resources and is developed via a floating production, storage and offloading (FPSO). Goliat came online in March 2016, after being delayed for several years and incurring over 50% costs overruns.

Goliat field illustration. Photo from Eni Norge.

Statoil’s Johan Castberg will likely be the next Barents Sea development. This field was discovered in 2011, and consists of two primary reservoirs called Skrugard and Havis. Initially Statoil, the operator, planned to develop the discovery with a tension leg platform (TLP) connected to an onshore terminal. After the discovery of Castberg, Statoil initiated an exploration campaign in the close proximately of the field. The purpose was to find additional resources and improve the economics of the TLP development solution. The campaign was unsuccessful and in combination with the falling oil price, the partners changed the development concept to an FPSO. The new development concept and current low unit prices have reduced the breakeven price from US$80 to $33/bbl.

In 2013, two new discoveries were made. OMV discovered Wisting Central, while Lundin discovered Gohta. Combined, the total discovered resources for 2013 was just below 0.5 billion boe, making the Barents Sea the province in Norway with the highest discovered resources in 2013. Additional resources were discovered around each of these fields in 2014, with Wisting and Alta/Gohta being two new potential development projects in the province.

As discoveries have proven to be commercial and new areas opened in the Barents Sea, there has been an increase in exploration activity. From 2011-2016, eight exploration wells were drilled on average per year in the Barents Sea. In 2017, this activity is expected to increase to around 17 exploration wells. The most active drillers in 2017 will be Lundin, Statoil and Eni.

The most exciting prospect in 2017 is the Korpfjell prospect. The Statoil-operated license lies in the formerly disputed Central Barents Sea. This structure is about 39km and 415km, respectively, from the Russian and Norwegian mainlands. The predrilled resource estimate is 2.2 billion bbl.

When adding up all of the potential developments in the Barents Sea, production is estimated to grow considerably. The first growth phase will be in 2016-2018, as Goliat production ramps up. Figure 3 shows historical and forecast production for this province. The next growth phase will be in the beginning of the next decade. With the anticipated startup of Castberg, Wisting and Alta/Gohta, total Barents Sea production may go above 0.5 MMboe/d – about three times higher than current production. The growth in production will be driven by oil, due to the latest discoveries being oil discoveries. However, to achieve this production growth, substantial investment is needed. Historically, annual investment for the Barents Sea has been just below $2 billion. After 2020, this is expected to reach close to $5 billion. Most of this spending will be on subsea equipment, rigs and FPSO construction.

(Left) Figure 2: Number of exploration wells (wild cats and appraisal) in the Norwegian part of Barents Sea from 2000-2017. (Right) Figure 3: Historical and forecast production (LHS) and investment (RHS) for the Norwegian Barents Sea.  Source: Rystad Energy UCube.

In total, the Barents Sea investments are expected to make up 20% of the total Western Europe offshore investments by the start of the next decade. This is considerably higher than the current share and illustrates how important Barents Sea will be for Western Europe.

Espen Erlingsen is a partner and leader of the E&P team at Rystad Energy. His areas of expertise include company and acreage valuation, breakeven price analysis and international petroleum fiscal regimes. Before becoming a partner, Erlingsen was the lead NCS analyst at Rystad Energy.