Commentary, 11/12, 2003

Published Dec 15, 2003
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The Waiting Game
With the release of the Norwegian Parliament White Paper number 38 (2001-2002) came a provocative chart showing two possible scenarios for the next 50 years of oil and gas production on the Norwegian Continental Shelf (NCS). The “gradual disintegration scenario” shows a plunging line from a little over 250 million Sm3 oe down to under 50 by 2030 and to approximately 10 by 2050. In opposition, the “long-term development scenario” is more positive, with almost 150 million Sm3 oe 50 years on. It’s a dramatic “either – or” look into the future, and it begs the question as to which we prefer. The chart is meant to inspire, but it is troubling. Why do we need to look at NCS activities this way?

The gradual disintegration scenario, it turns out is what will happen so long as it’s “business as usual” on the NCS. To counter the current trend, the Norwegian authorities’ spin is that innovation, technology and efficiency will ensure the brighter future. In one sense, it challenges NCS players to get busy, to adapt to the maturity of the NCS and to strive to develop the methods and means to make the brighter future happen. So the Norwegian authorities are waiting for the oil companies to act.

But hold on just a moment – doesn’t the business-as-usual, gradual disintegration scenario also mean that something in the current situation is hindering the optimisation of production? It makes one wonder just how and why the situation got to this point in the first place. It also implies that NCS operators haven’t really held up their end of the bargain.

Kon-Kraft, established in 1999, has been studying the situation with the purpose of improving and strengthening NCS competitiveness in order to secure stable and predictable development activity. This group – made up of the authorities, oil companies, the sub-contractor industry, Norwegian shipowners, unions, research institutions and the finance community – concludes that a sustainable NCS calls for material changes in the petroleum tax system.

The 78 percent tax rate can be stifling, dampening exploration and encouraging development of only the most significant discoveries. One problem is that such major discoveries are fewer and the number of test wells is diminishing. In the UK sector, where taxes are much lower, there has been more exploration and development, especially of smaller fields, and total production is high. Some may argue that the UK sector is more mature or that somehow the business practices there are the product of culture. There are differences, but there are also lessons to be learned.

A new White Paper from the authorities is due out in the coming spring, and everyone is waiting to see just what it will recommend. And then there will be more waiting, as the Parliament debates its response. So the oil companies will continue to wait – sitting on licenses in hopes of changes in the tax system or that new technologies will be developed.

Could waiting too long mean that the industry may have to begin from scratch? Without enough activity to ensure that those who work in the industry have jobs, expertise and experience will be lost, and starting over again will be time consuming and expensive. Already, many oil-industry workers have been made redundant, and that is an added expense as well.

So everyone is waiting. Who will make the first move?

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