Commentary, 1/2 2011

Published Feb 11, 2011
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Cover, 1/2 2011


When Director General of the Norwegian Petroleum Directorate, Bente Nyland, presented the NPD’s review of NCS activities in 2010 mid January, most of the popular media reports focused on the reduction of the estimated, undiscovered resources on the Norwegian Continental Shelf.

The NPD has reduced the estimated volume of undiscovered resources to 2.6 billion standard cubic metres of oil equivalents, down from its previous 2006 estimates.

More attention should have been paid to Director General Nyland’s challenge to the industry: “The fact that the companies on the Norwegian shelf are not able to achieve maximum exploitation of our fields poses a challenge. Although our recovery rate is among the best in the world, we are still not satisfied. If we manage to recover just one percent more, this would mean revenues in the hundreds of billions for Norway.”

The NPD’s dissatisfaction with recovery rates is part of the greater frustration caused by the decline in oil production rates on the NCS. And the authorities and the industry alike have voiced this frustration.

For larger NCS players such as Statoil, one solution has been to suggest the opening new areas to exploration. The mature areas of the NCS may have given up their giant fields, and many are keen to see what lies beneath the surface in areas that have been seismically surveyed but are now protected, such as off the Lofoten archipelago.

The NPD’s 2010 report does offer a nod the call for new areas. Although the NPD mentions the upcoming mapping the NCS north of the 68th parallel, including the new area between Norway and Russia, these plans await approval from authorities on both sides of the border. So it could be years before the potential is known and even longer before exploration can begin.

Likewise, the areas around the Jan Mayen and Svalbard islands undoubtedly hold potential finds, both small and large. But, again, these opportunities lie far in the future.

While 2010 was a year with high expenditures on the NCS as projects were developed, the level of exploration was disappointing, with fewer wells drilled compared to 2009. These figures should improve as the number of new licenses offered in the awards in predefined areas (APA) 2010 round grew in comparison to the 2009 round.

Perhaps the best news (a “luxury problem” as we say in Norway) is that the NPD worries that “capacity constraints could become an issue” – again, pointing towards the potential for more activity needed to grow to meet demand. Whether new fields in mature areas or new acreage, the need for maintenance of existing infrastructure as well as new developments should keep the NCS humming.

So re-estimating and lowering potential reserves may play well in the headlines, but by looking a bit deeper it’s apparent that this has little bearing on current activities or even the coming decade’s activities. The estimates are just that – estimates.

World demand for energy is still growing, although not at the rate we imagined it might. Add to this unrest in the Middle Eastern oil province, and it’s a fairly safe bet that oil prices will remain high for the foreseeable future.

So it is more and more apparent that the financial crisis has abated – at least for the energy sector. This should mean that the days of fence-sitting are over and even higher levels of activity are around the corner.

So what is the answer for maintaining a sustainable future for the NCS – increased oil recovery or more giant discoveries?

The answer is yes – and everything in between.

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