Barents opens up

Feb 17, 2014

For the first time in 20 years, Norway's government is looking to include a new area in the Barents Sea in its next exploration licensing round.

Blocks in the Barents Sea south-east have been included in consultation documents issued by Norway’s Ministry for Petroleum on its 23rd licensing round.

However, the proposed new acreage was announced alongside a warning about high costs on the Norwegian Continental Shelf (NCS).

Speaking in Oslo on Friday, Norway’s Minister of Petroleum and Energy Tord Lien said the NCS was still attractive, but that it had issues, the biggest being cost levels.

Speaking to Bloomberg today, he said Norway may align its regulations for offshore drilling with the UK in an attempt to reduce costs, which are as much as 45% higher than its neighbor.

Last year, Norwegian operator Statoil delayed its Johan Castberg project in the Arctic Barents Sea, citing higher costs and taxes. It also delayed the start of production at the giant Johan Sverdrup field, and dropped plans for a pipeline at the Kristin field.

Cost overruns have been highlighted by the Norwegian Petroleum Directorate (NPD). In November, it released a report which showed all were built during a tighter market, and that the higher level of activity exposed them to overruns.

The most important causes to delays were in planning; contract strategy; along with supplier and project follow-up, the report continued.

Access to drilling equipment is also a concern. “The need for drilling capacity from floating rigs will become even greater” as more oil and gas is produced using subsea installations without permanent platforms, Lien said.

Prime Minister Erna Solberg, following a meeting with Lien and other industry representatives, said: “There’s a need for a bit more industrialization in the industry itself.”

Measures to cut costs may include reducing bureaucracy both within the government and in the industry itself, and also tax incentives for encouraging increased recover.

The 23rd licensing round proposal includes a total 61 blocks, with seven blocks in the Norwegian Sea, 34 blocks in the southeast Barents Sea, and 20 blocks in the rest of southern Barents Sea.

“The proposed blocks include some of the least known areas of the NCS,” said the Ministry of Petroleum.“It is in these areas it is most likely to make new discoveries. Exploration in these areas are therefore essential to maintain production and activity level on the NCS over time.”

The Norwegian Petroleum Directorate has estimated recoverable resources for Barents Sea south-east between 55-565MM sq cu m oil equivalent. It says the potential for finding oil and gas is high. Gas is expected to account for 85% of the resources and oil for the remaining 15%.

To manage exploration in these new areas, the ministry said it would initially allocate a “limited number of key blocks,” with the results from these areas informing decisions over what blocks to release in future licensing rounds.

Last month, the Ministry received nominations from 40 companies, showing interest in 160 blocks or parts of blocks. Of those, 86 were nominated by two or more companies. New players showing an interest in the NCS included Lukoil, and Rosneft unit RN Nordic Oil.The Consultation is open until 4 April 2014.

Speaking on Friday, Lien said: “For the first time in 20 years a completely new area will be available in the Barents Sea. “After more than 40 years of petroleum production, Norway remains attractive. We have a wide range of players and are able to provide opportunities for both international majors and newly established exploration companies.”

He cited Thursday’s announcement of an agreed a development concept for the giant Johan Sverdrup field. Addressing the cost level concerns, he said: “A continued high cost base will erode values for both the companies and the country.

“This is a complex issue. There are many players, and they have strong and often conflicting interests. But the issue is so important that all players must consider how they may contribute to achieve lower costs.

“Lower costs are crucial for sound resource management and value creation. It is the responsibility of industry to maximize value creation and not leaving economic resources behind.

“We are determined to do our part of the job. We will look into government rules and regulations as part of the cost picture, and we will act where possible.However, most of the issues related to costs have to be addressed by the industry.”

Lien also addressed the country’s taxation system.

“In my mind, (policy) stability over time is one of Norway’s advantages for an industry faced with long lead-times in their commercial activities,” Lein said.

“Stability and predictability will remain a trademark. The tax system must underpin our policy goal - also when it comes to increased recovery from existing fields and the development of smaller, more marginal discoveries.

“Last summer there was an adjustment in one element in the tax-system. We have no specific plan to ease the petroleum tax, but we will assess the effects of the system with an open mind. My message is clear. Norway shall remain a stable and predictable place to do business.”

Norway buoyant but costs rise - http://www.oedigital.com/component/k2/item/4751-norway-buoyant-but-costs-rise

Arctic