Despite high drilling rates on the Norwegian Continental Shelf, discovery rates have been low and investment fell 16% in 2015, according to the Norwegian Petroleum Directorate (NPD).
Fifty-six exploration wells were spudded, with just 11 discoveries made in the North Sea and six in the Norwegian Sea, and all were mostly minor discoveries. From a record level in 2013 and 2014, investments fell by about 16% from 2014, to just under NOK 150 billion (US$17 billion).
But, the NPD also 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 sq cu m of 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
It's a mixed picture, outlined by the NPD's director general Bente Nyland yesterday. With more than half of the resources on the shelf have yet to be produced, Nyland 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 prioritize short-term earnings rather than long-term value creation," says Nyland.
The NPD expects investment to continue to fall going forward, followed by a moderate increase from 2019. The NPD estimates that investments will be well in excess of NOK 200 billion/yr in the next few years. It says the current low oil prices "have given rise to considerable challenges for the petroleum industry."
Costs were already running high and projects challenged at US$100/bbl. Between 2014-2015, prices halved to around $50/bbl. More recently, prices plunged to a 12-year low this year amid China's market crisis and the looming extra production from Iran as it gets closer to the sanctions against it being lifted.
But, the NPD thinks it's not all doom and gloom. "Significant remaining resources, combined with cost reductions and improved efficiency, can ensure continued high activity and future profitability," it says. "We have 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."
"It is also gratifying to see that the industry has invested substantial effort in increasing efficiency," says Nyland. "This work is starting to materialize in the form of lower costs."
"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," adds Nyland.
The NPD said it 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," concluded Nyland.
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