OLF: Hunt for Oil Now Linked to Idle Assets Not High Price

STAVANGER, Nov 14, 2006 (Dow Jones Newswires)

A strong historical link between high oil prices and abundant exploration has disappeared, but attempts to increase circulation of idle acreage could begin to reverse the de-coupling and boost the search for oil, the managing director of Norway's Oil Industry Association, or OLF, said Tuesday.

"The correlation between oil prices and (the level of) exploration was very close," said OLF MD Per Terje Vold at an oil conference in Stavanger. "But since 2001-2002, we don't see the correlation," he said.

High oil prices have not encouraged the traditional burst of investment in exploration, but new attempts to encourage incumbents to relinquish acreage could see exploration levels lift again from record lows in 2005, Vold said.

He welcomed a trend towards the relinquishing of idle acreage on the NCS, saying the Norwegian Petroleum Directorate's annual round of "awards in predefined areas", or APA, was attracting new players, forcing companies to make exploration decisions more quickly and enabling prospectors to employ higher-risk strategies to boost activity.

During the first three APA rounds, record numbers of companies have applied for licenses, and 43 discoveries have been made from 170 re-awarded licenses. Of these, Vold said, eight might be subject to development rather than lying idle.

"This is a very positive sign, it's fair to say APA has been a successful instrument for increasing activity and the efficiency of the NCS," Vold said.

Vold suggested that the current severe shortage of rigs on the NCS was a limitation to exploration, and added that after only three years of APA, it remained uncertain what quality of acreage was being relinquished.

"Is it prospective or will idle acreage only shift ownership from companies to the state?" Vold asked. Annual rather than every other year licensing rounds means "there is little 'wait for the right moment' strategy," he cautioned.

As a short-term solution to the dearth of exploration, APA is effective but we still know little about the longer-term facts, Vold said.

"The government has given us a lot of (area in APA), but the focus should be on the quality rather than the quantity of acreage," he concluded.

Awards under the fourth APA have been pushed to mid-January from December due to unprecedented interest from oil and gas companies.

Copyright (c) 2006 Dow Jones & Company, Inc.

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