Barents license awards: analysis

On first glance, the 23rd Norwegian Licensing Round doesn’t look too exciting. Ten licences split between 13 companies could be seen as a sign of the times for the exploration industry.

However with a high level of committed wells, the opening of a new frontier, new entrants and a new operator in the Barents Sea, the licence results may be more interesting than they seem…

Fewer companies, higher commitment

Only half (13) of the 26* companies who submitted applications at the end of Q4 2015 received licences. A lower percentage than in all other Norwegian rounds over the past decade.

• The previous two numbered rounds saw around four in five applying companies receive awards. The 22nd round was in 2013, and the 21st in 2011.
• The last two numbered rounds, which had less of a heavy focus on the Barents Sea, also had more applicants (37 and 36 respectively). This could be put down to the current business environment. But also to the risk appetite and long term mind set companies working in the Barents need. 
• The Barents is not a large part of the portfolio for most of the 13 companies who applied and didn’t receive awards. Edison is the exception. Half of their portfolio is in the Barents and they have the 4th highest number of licenses here (pre 23rd round awards, excluding Petoro).

Just 10 licenses were awarded. This is less than half the number in the 22nd round (24). That said, a similar proportion of offered acreage was awarded (~60%).

• There were also fewer blocks on offer this time (57 compared to 86) but licenses have got bigger. In the 22nd round, licenses were on average just over two blocks in size. For the 23rd round, the average is three and a half blocks. 

Five firm wells were committed to be drilled over the next three years. An increase from three firm well commitments in both the last two numbered rounds.

Interest in new frontiers, and around recent successes

Four of the firm wells were in the newly offered acreage in the East Barents, on the Russian border, which proved very popular.

• Three very large licenses (the largest at 12 blocks) were awarded to groups of experienced Barents players (Statoil, Det Norske, Lundin, ConocoPhillips and Chevron).
• 25 of 31 blocks available in this area were awarded.
• Frontier exploration, despite the low price environment and high commerciality thresholds (which are expected to be as high as 0.5bn boe for oil, and 6 Tcf for gas†), appears to still be attracting interest.

There were two other areas of license award;

1. North of Alta and Gohta. Unsurprisingly Lundin (Op), DEA, and Idemitsu continued their partnership near to the Alta (2014) and Gohta (2013) discoveries.
2. Around Wisting and Hanssen. PL855 sees OMV, Tullow, Statoil and Petoro gain acreage close to their Wisting (2013) and Hanssen (2014) discoveries. Idemitsu, a partner in these, appears to have decided not to participate in this area.

None of the four Norwegian Sea blocks offered were awarded.

Companies, old and new

Chevron has been tempted to re-enter the Barents, and in fact re-enter Norway, by the opening of the frontier South East Barents. They were awarded one non-operated license here. Chevron was last in the Barents in 2011, and hasn’t held any licences in Norway for the past year, since relinquishing its Norwegian Sea position.

Capricorn (Cairn) is a new entrant to the Barents, as well as a new operator in the region. The firm picked up three licences, including one operated position. This is only Capricorn’s second operated licence in Norway. The company's first was awarded in the recent APA 2015, where they picked up five licences in total, showing ambition for organic growth.

Relative newcomers to the Norwegian Shelf who applied in the 23rd round (incl. INPEX, Kufpec, Moeco, Rosneft) struggled and were awarded no licenses. Kufpec did manage to enter the Barents in the recent 2015 APA awards.

*Shell pulled out leaving 25. It’s not clear whether any other companies withdrew, or if Shell’s move meant partners had to follow.

†Source: Wood Mackenzie