Low Proving Costs, But Not Much Exploration

Even though it costs less to find a barrel of oil on the Norwegian shelf than many other places in the world, we do not manage to replace production through new discoveries. Now Norway must also tax its reserves due to a low level of exploration activity.

Since the discovery of Ekofisk in 1969, more giant discoveries have been proven in Norway than in any other oil province in the world. In fact, one of four giant fields that have been proven world-wide in the past 25 years is located on the Norwegian shelf.

On the Norwegian shelf, as in the rest of the world, the trend is nevertheless that the size of the discoveries is diminishing, while at the same time there is a longer period between each time a new giant field is proven.

Ormen Lange was proven in 1997. The field is estimated to contain nearly 400 billion Sm3 gas, and is among the world's five to ten largest discoveries in the past 15 years.

Fewer discoveries – record production

Globally the peak for annual resource growth from new oil and gas discoveries was reached as early as in the 1960s. Since then there has been a steady decline year after year. In Norway the peak was reached in 1979, the year when fields such as Oseberg, Snoore and the gas giant Troll were proven. Troll is one of the world's very largest gas discoveries, and the largest made since the petroleum activities started in Norway.

At the same time we produce more oil and gas than ever before. Both in 2002 and 2003 a new production record was set on the Norwegian shelf.

There are many years left before the oil adventure is over. Nevertheless, the situation today is that we produce more than we manage to replace through new discoveries. Oil and gas worth enormous sums are still in the ground. According to the NPD's estimates, there are a lot of undiscovered petroleum resources concealed in the North Sea, the Norwegian Sea and the Barents Sea. The NPD estimates that one-fourth of the total amount of petroleum resources on the Norwegian shelf remain to be found.

Increased reserve growth requires more than what is possible through a regular upwards adjusting of reserves in existing fields as new technology is developed. New resources must be proven through more effective exploration. It is therefore necessary that more prospects are mapped and more exploration wells drilled, so that new, large discoveries are proven and, as more areas of the shelf go into a mature phase, so that additional resources are proven that can be phased into fields in production.

80,000 wells in the world – 200 in Norway
Globally, about 80,000 wildcat wells and development wells are drilled annually. About half of these are drilled on land in the USA. About 3,000 offshore wells are drilled annually. Half of these are in the Gulf of Mexico and the North Sea.

The approximately 200 wells that are drilled on the Norwegian shelf every year are very few by such standards. It is a paradox that Norway is the world's third largest exporter of both oil and gas, and the Norwegian shelf counts as a core area for the world's largest oil companies.

Despite a low level of drilling activity compared with other oil provinces, the Norwegian shelf keeps up the pace. This is due to several reasons:

Nature has endowed the Norwegian shelf with "good" reservoirs. The reservoir properties are of great importance for how easy and how much oil and gas it is possible to recover.

The authorities have set a goal of achieving an average recovery rate of 50 percent of the oil and 75 percent of the gas from the Norwegian shelf. The average is currently about 44 percent. The Statfjord fFeld, one of the earliest major discoveries on the Norwegian shelf, has an expected final recovery rate of nearly 80 percent. In other words, if the goal is reached only one-fifth of the oil that was in the reservoir when Statfjord came on stream in 1979 will remain in the reservoir when production ceases some day.

Another reason for the success is technology, where the players in the petroleum industry together have contributed to Norway today having a world-leading position. Finding and recovering the resources on the Norwegian shelf have meant challenges with regard to the weather, water depth and climate, and the petroleum industry in Norway has been in the forefront world-wide when it comes to developing and putting new technology into use to solve the tasks.

Costs - more than just the climate
The need for more wells, combined with a generally declining discovery size, will sooner or later lead to challenges with regard to the cost level.

Norway is a high-cost country in many areas. It costs more to explore for and recover petroleum on the Norwegian shelf than in other comparable oil provinces. This is in part due to the fact that it is more demanding to operate petroleum activities in harsh sea areas than on a field on land in the USA or the Middle East. But the wage level in Norway and the conditions under which the petroleum industry operates also play a part.

Further commitments to cost-effective technology can contribute to keeping costs at an acceptable level, emphasizes NPD Director Tormod Slåtsveen.

"The petroleum industry in Norway has always been in the forefront with regard to developing and putting new technology into use. Technological developments have in many cases been a prerequisite for operating on the Norwegian shelf at all. Developing new technology and improving existing technology will be important in the future as well, not just to master deep water or difficult weather conditions, but to make the businesses as financially robust as possible, says Slåtsveen, but he also adds that if the possibility of new discoveries comes more into line with the majority of the world's oil and gas provinces, the cost level and framework will have to be adapted.

"I believe the petroleum industry will have to look at current work processes. We must start to prepare for the future now."

Substantial opportunities The Norwegian shelf is still in a relatively early phase. A continued very high discovery rate, i.e. the number of discoveries per wildcat well, characterizes activities in Norway. This is due to a high level of expertise and good technological solutions, but also many years of good management. Among other things, the authorities' strategy for gradual exploring of the shelf has been an important policy instrument in order to achieve the best possible socio-economic exploitation of the resources.

"We still think there are substantial opportunities on the Norwegian shelf, both as regards increasing recovery from fields already in production and through a continued effective exploration for and proving of new resources in mature as well as unexplored areas. Even though more time elapses between the giant discoveries, there is nothing to indicate that Norway will not have its share of the large discoveries in the world in the future as well."

Low costs
Even though the cost-level is high, it is still relative inexpensive to find oil and gas in Norway. The proving cost per barrel, measured as total exploration costs divided by the amount of petroleum found, puts the Norwegian shelf in a favorable light. The proving cost in Norway in recent years has been a bit over one dollar per barrel.

In most other developed parts of the world this cost has been considerably higher for many years.

The reason for the low costs is, as already mentioned, connected with technology and good reservoir properties, but also the many large discoveries on the Norwegian shelf. Few wells, a good discovery rate and large volumes have together kept the average cost down.

"Seen in a global perspective, with a world class prospectivity, recent years have been good for Norway. The Norwegian shelf is attractive to new players, while at the same time it should be possible to create new opportunities for existing players.

"We have been competitive since 1969, when Ekofisk was discovered, and if we manage to keep the costs down we will continue to be so for many years to come," says Slåtsveen.
Company: Norwegian Petroleum Directorate more info
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