The oil price crash has been a tough ride for all producers, especially those working in higher-cost areas such as the Norwegian Continental Shelf. Although investments in Norway’s oil were slashed and are expected to continue sliding in the near term, efficiency has increased. Coupled with greater regularity in the operation of production platforms, this has led to substantial cuts in operating and exploration costs.
Higher efficiency, lower-than-expected production decline from mature fields, and faster-than-forecast drilling at new production wells led to a more than 3-percent rise in Norway’s crude oil production last year, versus forecasts for a decline. In addition, the country’s industry regulator, the Norwegian Petroleum Directorate (NPD), increased last week its oil production forecasts for the short and medium term, compared to the forecasts made at the same time last year.
NPD’s figures showed that Norway’s oil production averaged 1.62 million bpd last year, up from 1.56 million bpd for 2015. The regulator’s earlier forecasts had pointed to “somewhat lower oil production in 2016 than the preceding year”.
“However, many of the older fields have produced vastly more than presumed,” it noted.
Forecasts for this year are that oil production would remain stable at 1.62 million bpd, with output expected to decline leading up to 2020, when the contribution from the Johan Sverdrup field is expected to raise production levels again. The latest oil output estimates for the period between 2017 and 2030 are 5 percent higher than the estimates the NPD had made in 2016.
Over the last two years, Norwegian oil production was 6 percent higher than forecasts, according to Bloomberg calculations. Forecasts for 2017 to 2020 were lifted by 8 percent, or by an average of 110,000 bpd. The increase in the estimate is equal to the 2015 production of Norway’s third-largest field, Snorre, in the North Sea, Bloomberg calculations of NPD data showed.
According to the petroleum directorate, investments in the short term will continue to drop. Last year investment was reduced by 16 percent compared to 2015, and this year’s investments are expected further down, by 11 percent compared to 2016. Another 5-percent drop is projected for 2018 investment, to be followed by a “moderate rise”. Related: OPEC’s December Cuts Are A Bullish Sign For Oil Markets
“The drop in investments is partially due to lower activity, but is also a consequence of the reduced cost level,” the NPD said.
So it’s not only the oil price slump which should be blamed for the lower investment. It’s also higher efficiency.
“The same number of wells can be drilled at a substantially lower cost,” the industry regulator said.
Case in point, Norway’s oil giant Statoil said earlier this month that it would increase drilling activity this year, with more than half of the wells to be drilled on the Norwegian Continental Shelf. Improvements have allowed the company “to get more wells, more acreage and more seismic data for our exploration investments in later years”.
Aker BP, the second-biggest Norway-based oil company after Statoil, expects to raise 2017 output to 128,000-135,000 boepd, compared with 118,200 boepd for 2016.
Even if the efficiency drive has helped producers to cut costs, Norway’s industry regulator warned against focusing on reductions and increased profitability gains in the short term at the expense of longer-term value creation.
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Still, the greater efficiency and reduced costs in Norway’s oil is a step closer towards defying earlier and gloomier output forecasts.
By Tsvetana Paraskova for Oilprice.com
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