Oil companies have recently focused on frontier exploration drilling in the Barents Sea offshore in Norway, neglecting the powerhouse of the Norwegian oil industry, the North Sea.
Exploration activity in the North Sea—the most mature area of Western Europe’s biggest oil producer—is at an 11-year low this year, which is a concern for the industry’s regulator, the Norwegian Petroleum Directorate (NPD).
“That worries me,” NPD Director General Bente Nyland told Bloomberg in a recent interview, voicing the industry concern that without new oil discoveries, especially in mature areas with well-connected infrastructure, the decline in Norway’s oil production would be even bigger than expected.
Following a continual decline between 2001 and 2013, Norway’s crude oil production rose last year for the third year running, but according to the Norwegian Petroleum Directorate (NPD), oil production this year would be nearly half the volume from the peak in 2000-2001.
Two huge fields discovered in 2010 and 2011, Johan Sverdrup in the North Sea, and Johan Castberg in the Barents Sea, are expected to start operations in 2019 and 2022, respectively, and will lift Norway’s oil production in the early 2020s compared to expected declines in 2018 and 2019.
But after 2025, production and activity are expected to significantly drop off unless there are new discoveries, according to oil major Statoil.
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Norway’s Ministry of Petroleum and Energy, and NPD say:
“Production from new fields that come on stream will compensate for the decline in production from ageing fields. However, in the longer term, the level of production will depend on new discoveries being made, the development of discoveries, and the implementation of improved recovery projects on existing fields.”
Encouraged by recently opened areas and potentially huge yet-to-be-discovered resources, oil companies launched a record exploration drilling campaign in Norway’s Barents Sea this year. But the drilling campaign was a flop, and even the most promising wildcat yielded no oil.
Companies are vowing to return next year for more exploration in the frontier regions, but they’ve been neglecting the North Sea—the most mature area where Norway’s petroleum history began, and which made the country one of the world’s richest.
The North Sea is still the powerhouse of Norway’s oil with 62 fields in production as of the end of 2016, compared to 16 fields in production in the Norwegian Sea and two fields—Snøhvit and Goliat—in the Barents Sea.
This year oil companies drilled a record number of wells in the Barents Sea, which is thought to hold 49 percent of Norway’s undiscovered resources, while the North Sea has 24 percent of undiscovered oil and gas, and the Norwegian Sea 27 percent.
The North Sea’s huge fields have pumped oil and gas for decades and are now maturing. Therefore, Norway needs to add more resources in the North Sea before some of the existing infrastructure, including platforms, is folded and decommissioned, according to NPD’s Nyland.
In an overview of the Norwegian Continental Shelf for 2016, Nyland pointed to “a great deal of uncertainty associated with exploration activity going forward.”
“It is very important to maintain exploration activity at a high level in order to maintain stable production in the future,” she said.
The Barents Sea was a large part of exploration activity this year, but results were underwhelming. Related: Coal Prices Soar As Demand Heats Up
“Exploration drilling in the Barents Sea in 2017 and 2018 will help clarify future opportunities in the Barents Sea and the Norwegian continental shelf,” Statoil says, but its chief executive Eldar Saetre also points out that the industry needs to heed what NPD’s Nyland has been saying about neglecting the North Sea.
“If we continue to see a trend where we’re not making bigger discoveries, we will have to search more in mature areas,” Saetre told Bloomberg in an interview. “This is an important issue,” he added.
As juicy as it sounds, the Barents Sea holds nearly half of Norway’s undiscovered resources, but the North Sea has the developed infrastructure to link new discoveries to existing fields and make even smaller new finds commercially viable when linked to producing areas. So, returning to the old stomping grounds may ultimately pay off.
By Tsvetana Paraskova for Oilprice.com
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