Offshore Norway 2003 - Annual Report

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The petroleum sector is Norway's most important industry. The Norwegian Petroleum Directorate's knowledge, overview, insight and expertise make a big contribution to value creation on the Norwegian continental shelf. Its knowledge of the past helps to build the future for this industry. Offshore Norway 2003, the NPD's annual report published today, provides knowledge about both past and future.

The petroleum industry contributed 20 percent of Norway's gross domestic product in 2002, 23 percent of its investment and 43 percent of its total exports.

Norwegian petroleum production continued to rise. A total of 262 million standard cubic meters of oil equivalent (scm oe) was produced in 2003, an increase of three million scm oe from the previous record in the year before. Investment was high, at about NOK 62 billion excluding exploration costs. This represented a rise of NOK 10 billion from 2002.

Exploration activity was low in 2003, with only 22 exploration wells drilled. Of these, 14 were wildcats and 8 appraisals. Eleven new discoveries were nevertheless made. Preliminary calculations from the NPD indicate that about 40 pe cent of production in 2003 was replaced by new discoveries.

A record for announcing and awarding new exploration acreage was also set in 2003. In all, 30 production licenses were awarded in the North and Norwegian Seas. Norway's 18th offshore licensing round, announced in December 2003, is the largest in terms of acreage on offer in a numbered round since the first in 1965. Awards are expected in the second quarter of this year.

"The positive trend for production and investment reflects decisions taken in the 1970s, 1980s and 1990s," observes Gunnar Berge, director-general of the NPD. "This good news must not be taken as an excuse to rest on our laurels. The fact is that if we continue the way we are going, the curves will show an abrupt downturn within about five years. Continued progress for the Norwegian oil industry and economy depends on making the necessary adjustments now."

One important adjustment in 2003 was the decision to reopen parts of the Barents Sea to exploration drilling. This followed the ULB impact assessment of year-round petroleum operations off Lofoten and in the Barents Sea. NPD calculations indicate that about a third of undiscovered resources on the NCS or about one billion scm oe lie in the area covered by the ULB study.

Continuing the positive development of the NCS is dependent on giving the petroleum industry opportunities to find interesting assignments, also in northern waters. Building up the expertise and knowledge needed by the Norwegian petroleum industry to meet tomorrow's challenges has taken almost four decades. It is important that the companies operation on the NCS earn sufficiently well to justify both dry wells and the heavyweight expertise and technology development which was and remains essential for producing oil and gas.

About 12.9 billion scm oe of the total resources in place on the NCS are regarded as commercially recoverable. This is a dynamic estimate, and depends on the willingness of licensees to sanction exploration, development and measures to increase the recovery factor on producing fields.

Improving the recovery factor calls for a conscious and long-term commitment.

Oil companies have tended in recent years to focus strongly on fast profits. Instead of long-term strategies, the industry has concentrated to a large extent on quick earnings and good quarterly results.

An average recovery factor of 50 percent for oil and 75 percent for gas has been set by the authorities as their target for the NCS. The NPD will be a prime mover in ensuring that this objective is met, and will continue to encourage greater collaboration between the players on developing cost-effective methods and measures for improved recovery.

"With a purposeful commitment and willingness to adopt the required technology, and providing the necessary measures are adopted, there is no reason why an improvement in the recovery factor should be confined to the government's target," says Mr. Berge.
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