Higher oil prices and increased efficiency have made companies more optimistic that they could spend more on exploration on the Norwegian Continental Shelf (NCS) this year than they did in the previous two years of stubbornly low oil prices.
Oil firms have boosted exploration spending more than expected, and so far in 2018 they have had more success in discoveries than in the years of the oil price slump.
Actually, according to Bloomberg calculations based on data by the Norwegian Petroleum Directorate (NPD), companies are on track to find nearly 1 billion barrels of oil equivalents this year. These calculations show that the resources found per well could reach their highest since 2010—the year in which the giant Johan Sverdrup oil field was discovered in the North Sea with resources estimated at between 2.1 billion and 3.1 billion barrels of oil equivalents. Johan Sverdrup—with production start planned for late 2019—will be one of the most important industrial projects in Norway in the next 50 years and will be the main contributor to Norway’s rising oil production until 2023.
But from the mid-2020s onward, production offshore Norway will start to decline “so making new and large discoveries quickly is necessary for maintaining production at the same level from the mid-2020s,” Torgeir Stordal, Director exploration at the NPD, said in the directorate’s resource and exploration report 2018 published last week. Related: NAFTA Rift Could Be A Boon For Canadian Oil
Last year’s exploration campaign, mostly focused on frontier areas in the Barents Sea, was a flop, but oil companies operating on the Norwegian shelf vowed to return this year for a renewed effort to find oil in the sea estimated to hold nearly two-thirds of Norway’s undiscovered resources.
Although this year wells are also being spud in the Barents and Norwegian Seas, the focus is on the backyard of the Norwegian oil—the North Sea.
In all three seas around Norway, 10 wildcats have been completed so far this year, and resources found are around 330 million barrels of oil equivalent, according to Bloomberg calculations based on the mid-point estimate of this year’s discoveries reported by the NPD. The total resources found so far this year have already exceeded the volumes found in the 24 wildcats last year.
“Prices are now coming back up, so activity is picking up, and they’ll want to drill wells that they might have held back on when oil prices were low,” the NPD’s Stordal told Bloomberg.
Following years of high exploration activity, the oil price crash led to exploration slumping from 56 wells drilled in 2015 to just 36 wells in 2016 and 2017, the NPD said in its resource report. But this year, between 40 and 50 exploration wells are expected to be drilled, the regulator noted.
“On average, discoveries in recent years are smaller than before. Smaller finds and fewer wells will make it demanding to maintain production over time. The number of wells drilled and the size of discoveries made must be above the average for the past decade if production is to be sustained at a high level. Opportunities for making larger finds are probably greatest in less-explored areas,” the NPD said.
The higher exploration success rate so far this year couldn’t have come at a better time for Norway’s oil industry and the operators on its shelf. Oil prices are higher than in the previous three years. The more commercially viable resources are found, the more Norway could push back the currently expected drop-off in production from the mid-2020s onward. Related: Saudi Oil Minister: OPEC+ Agreement Is Just The Beginning
Even small discoveries close to existing infrastructure in the more developed areas on the shelf could be commercial if they are tied back to production facilities.
“Maintaining a high level of exploration is important for identifying and developing small discoveries while the big installations are still on stream,” says the NPD.
Case in point—Equinor, formerly Statoil, struck oil earlier this month in a wildcat well drilled in the central part of the North Sea, and thinks the discovery will be commercial.
Following dismal drilling campaigns and depressed oil prices in 2016 and 2017, Norway’s oil industry and companies operating on its shelf may have another reason—besides higher oil prices—to be happy this year, if the current rate of resource discoveries continues.
By Tsvetana Paraskova for Oilprice.com
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