Norwegian Licensing Round Activity in 2016
Norway’s oil and gas industry is struggling to cope with the effects of an ever-declining crude price. Investments in this sector are predicted to drop by almost 40 percent from 2014 to 2017, according to the Norwegian Oil and Gas Association, with Statistics Norway anticipating the number of active rigs on the Norwegian Shelf to decrease this year. In addition, Norwegian energy firms, such as Statoil ASA and Aker Solutions ASA, are laying off employees and key projects are experiencing expenditure cuts.
Unfortunately for the Norwegian energy industry, exploration activity on the Norwegian Continental Shelf didn’t prove to be too helpful in creating value for the region in 2015. Fifty-six exploration wells were drilled in the area last year, with the vast majority coming up dry, and although a few minor hydrocarbon finds were encountered, no major discoveries were reported. The number of exploration wells drilled in 2015 marks a gentle declining trend from the 56 exploration wells drilled in 2014 and the 59 exploration wells drilled in 2013.
In an effort to increase the value and activity level of the Norwegian energy industry, Norway’s Ministry of Petroleum and Energy launched the 23rd and APA 2015 licensing rounds last year, which include all new exploration acreage. The 23rd licensing round contains 57 blocks/parts of blocks, of which:
- 34 blocks are located in the south-eastern Barents Sea, in the formerly disputed area towards Russia
- 20 blocks are in other parts of the Barents Sea
- 3 blocks are in the Norwegian Sea
With its focus on the south-eastern Barents Sea, the 23rd round marks the first time since 1994 that an entirely new area will be explored on the Norwegian Shelf.
The application deadline for production licenses in the 23rd round expired Dec. 2, 2015. By the end of the deadline, 26 companies had applied for exploration acreage and many of these firms ended up targeting the newly opened area in the south-eastern Barents Sea. Despite the attention received by these new blocks from various oil and gas firms, no one has a concrete idea about their resource potential. Sissel Eriksen, the exploration director at the Norwegian Petroleum Directorate, highlighted in an NPD statement in December of last year that the amount of resources contained in these new blocks is unclear due to their unexplored nature, and suggested that more exploration is needed in order to clarify what these assets hold. With several key discoveries made in the Barents Sea over the past few years however, such as the 7324/8-1 (Wisting), 7120/1-3 (Gotha) and the 7220/11-1 (Alta) finds, there are high hopes for the new exploration acreage.
Applicants in the 23rd licensing round consisted of mostly large and medium-sized companies, with BP Norge, Chevron Norge AS, ConocoPhillips Skandinavia AS and Statoil Petroleum AS all applying for a stake in the latest asset auction, although a few smaller players also entered into the running. Two of the applicant companies, INPEX Norge AS and KUFPEC Norway AS, were newcomers to the bidding round, much to the delight of Eriksen, who stated in an NPD release at the end of last year that the establishment of new players on the Norwegian Shelf would contribute to enhanced value creation.
The NPD is currently reviewing all the applications for the 23rd licensing round and the Ministry of Petroleum and Energy plans to award new licenses before the summer. The companies “with the best knowledge, the best applications and the best strategy for exploring the areas” will be chosen by the NPD, which has warned that firms must have both technical expertise and a good understanding of the geology. Financial strength and experience are also emphasized as necessary traits.
APA (Awards in Predefined Areas) 2015 was announced by the Ministry of Petroleum and Energy April 21, 2015. Compared to APA 2014, the 2015 licensing round included an expansion of the predefined area by 35 blocks in the Norwegian Sea – including blocks close to the Aasta Hansteen field and the Pil and Bue discoveries at Haltenbanken – and 11 blocks in the Barents Sea=, near to the Alta and Gotha discoveries.
A total of 44 companies submitted applications for APA 2015, which was just three less than the 47 firms that registered applications for APA 2014. Last month, the NPD stated that the difference in applicant numbers between the APA 2015 and 23rd licensing rounds could indicate that the smaller players have prioritized the APA ahead of the latter acreage auction due to the licensing round’s traditional focus on relatively smaller discoveries. The Ministry of Petroleum and Energy announced Jan. 19 that 56 exploration licenses had been awarded as part of the APA 2015 round. Statoil received the most acreage with 24 licenses, including 13 operatorships, with Det norske oljeselskap and Tullow securing 10 and eight licenses, respectively.
Despite the low oil price environment currently affecting the oil and gas industry, both of Norway’s latest licensing rounds received strong levels of interest. Off the back of several exciting discoveries in Norwegian waters in recent years, energy firms are keen to explore the country’s available offshore acreage, which is great news for a Norwegian petroleum industry looking to increase value and activity levels on the Norwegian Continental Shelf.
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