Norway’s challenges and opportunities

Elaine Maslin

August 1, 2014

Ingrid Sølvberg, director for the Norwegian and Barents seas, Norwegian Petroleum Directorate. Photo from UTC. 

Challenges to produce new areas, like the Barents, and extend the life of more mature regions, are high on the agenda for Norway’s Petroleum Directorate. Elaine Maslin reports from the Underwater Technology Conference in Bergen.

Subsea technology has transformed Norway’s oil and gas industry, helping to realize resources that would otherwise have been left in the ground, says Norwegian Petroleum Directorate (NPD) director Ingrid Sølvberg.

Since 2010, the total production from subsea completed wells has exceeded the production from platform completed wells, with the majority of the increase from gas. Subsea oil production has remained stable since 2006.

But there are also challenges, Sølvberg, the NPD’s director for the Norwegian and Barents seas, told Bergen’s Underwater Technology Conference in June. Norway’s basins, the North Sea, Norwegian Sea, and Barents Sea, have varying degrees of maturity, and continued focus on implementing new technology, as well as ensuring co-operation between operators, some of which are new to development operations on the Norwegian Continental Shelf (NCS), will be key to their long-term future, she said.

The basins

There is still a significant remaining resource potential in the North Sea, Sølvberg says. “It is a curiosity that the giant Johan Sverdrup discovery was part of production license 001 – the first license awarded on the NCS in 1965 to Esso—and was proven roughly 45 years later,” she says. “The Sverdrup success is a good example of the importance of thoroughly examining areas we thought were well explored.”

In the Norwegian Sea, about one third of the expected resources are sold and delivered. “Until now gas discoveries in the deep water area have been smaller than expected.”

However, she adds: “The NPD still sees a large remaining potential in the Norwegian Sea. VNG’s recent oil discovery Pil in the Njord/Draugen area demonstrates that there is yet more to find.”

In the Barents Sea, only 2% of the expected resources are sold and delivered.

“The center of gravity for undiscovered resources has gradually moved north. It is here, in the Barents Sea, that the potential is greatest—and it is also here the uncertainty is greatest,” she said.

Maintaining production

Field life on the NCS has proven to be much longer than originally estimated, with the total resource estimate having increased by 70%, compared to field plan for development and operation (PDO) estimates.

The resource increase has been helped by a focus on research and development and adopting new technologies, Sølvberg says.

Gas and water injection has also been more efficient than anticipated and continuous improvements in reservoir understanding has led to drilling more wells than originally planned as well.

The trend is likely to continue, with many fields in production or under development today expected to provide about 50% of the predicted production in 2030. But this will require continued efforts to extend field life and find ways to increase recovery, Sølvberg says, adding that there are about 165 projects currently being planned to improve recovery from producing fields.

Norway’s maintained production rates will also be aided by new major fields such as Johan Sverdrup and Johan Castberg, as well as further new discoveries. Beginning from 2025, Norway’s undiscovered resources will need to be tapped to maintain the country’s production levels, Sølvberg told UTC.

The cost challenge

To achieve this, there are challenges, including overall costs, as highlighted by Statoil’s Anders Opedal (see p. 108). “For a producing field, today’s unit cost is nearly three times the cost [that it was] 10 years ago,” Sølvberg says. “As an overall trend, we see that unit costs increase in line with the oil price. The cost increase eats up the profitability effect of an increased oil price. Projects also become increasingly vulnerable to a drop in oil price. If this trend continues, realization of future projects is increasingly threatened by too low profit margins.”

Companies are trying to implement stronger capital discipline. But the NPD is concerned that if capital discipline is too strong, it could result in short-termism and pricing of risk could become too conservative.

A specific cost challenge for subsea oil fields is that they produce on average about 50/50 water and oil, making water production an increasing challenge for future recovery, as subsea fields move into decline. “Cost efficient technologies for removing water or in the wells can have a big potential to obtain good resource management,” Sølvberg says.

Another concern for the NPD is the number of license owners with little field development experience on the NCS. The number of license owners on the NCS doubled between 2002-2007, with 58 license owners now operating on the NCS.

There are currently 13 fields with PDO approval today, she says. These have a total of 22 license owners, 16 of which are considered to have limited development experience on the NCS. Of 21 discoveries in a mature (pre-PDO) planning phase, there are 26 license owners, of which 21 are considered to have limited development experience from the NCS. “This puts demand not only on the newcomers, but also requires that license owners and contractors with experience from the NCS to demonstrate a will to cooperate and transfer experience,” Sølvberg says.

An artist’s impression of Statoil’s Johan Sverdrup concept. Image from Statoil. 

Tie-backs

Another trend is tying-in third party resources. This has helped to increase operational life and tail-end production on host fields. But, there are challenges, specifically around lack of commercial agreements. “This can be due to conflicting interests regarding use of spare capacity to increase recovery from host field versus hosting third party resources. It can also be due competition for capacity by two or more third parties,” Sølvberg says. “Another part is related to use of existing infrastructure vs building new. Area solutions to establish new infrastructure may involve many companies with different strategies. It can be commercially challenging to coordinate terms and schedules.”

To address this, in 2012, the NPD established an area forum in the Gjøa area, called Q35, in order to coordinate development of several discoveries and maximize use of existing infrastructure. The NPD is now considering similar initiatives for other areas on the NCS.

The Barents Sea

The Barents Sea offers the greatest potential on the NCS. There has been exploration activity in the Barents Sea since the fifth concession round in 1980. Optimism was initially high, with several gas discoveries in the 1980s. Interest then waned and after a number of dry wells were drilled and not a single well was drilled in 1994-2000. The government suspended activities in 2001, while an impact assessment for year-round petroleum activities in the Barents Sea was drawn up, and in December 2003, the area was reopened for exploration.

The Gjøa platform, operated by GDF Suez E&P Norge. Photo from GDF Suez E&P, by Jan Inge Haga. 

“Today, optimism is back in the Barents Sea. In the last three years more than 20 wells have been drilled. The number of exploration wells recorded last year were the highest ever and we may break this record already this year,” Sølvberg says. So far in 2014, four exploration wells have been completed and three are in progress. During the next two years 15-18 wells are planned, and more drill or drop decisions will be made.

“The Johan Castberg area has more than 500MMbbl to be developed. The Wisting and Gohta discoveries are exciting. Results from ongoing wells like Apollo, Hanssen, Gohta appraisal and later Alta will give important information in order to evaluate the development potential in these areas.”

Apart from the oil price, technology development and area solutions, to reduce unit costs, are key to the Barents Sea’s future, Sølvberg says.

“The combination of shallow reservoirs, low pressures, and long distances call for development and implementation of new technology. In the Barents Sea, the development of subsea separation, boosting, and compression technology could prove important to develop new discoveries,” she says.

The lack of gas infrastructure in the region is a particular challenge. “Today’s infrastructure – mainly the Snøhvit LNG facilities—cannot make room for new gas until earliest 2045. This could become an obstacle for further exploration and development. Therefore, area solutions and coordination across licenses is vital.”

With high cost levels and the industry seeking to reduce economic exposure, there will be significant opposing forces trying to find solutions across production licenses, making the NPD’s task to develop the Barents Sea holistically crucial, she says.

Conclusion

“Both the emerging Barents Sea and the aging part of the NCS introduce new challenges, but we believe in the opportunities. We believe development of technological solutions that go hand in hand with good area solutions is the key to success. The NPD expects license owners to cooperate with each other, contractors, and authorities to find coordinated and holistic solutions.”