At the Wellhead: Norwegian renaissance may be on tap

The CEO of the group responsible for one of the biggest finds ever made offshore Norway stopped short this month of saying there is currently a full-scale renaissance in oil exploration taking place, but says there is a lot of excitement now and more major finds will be made.

With output from Norway’s mature fields locked into constant decline from a peak of 3.42 million b/d in 2001 to an expected 1.6 million b/d this year, gloom had descended on the industry. New discoveries had failed to arrest the country’s descent down the league table of global oil producers.

Now, however, the gloom appears to be lifting and there is fresh hope and a new edge to the sector.

“I am confident there will be further exploration successes in both the North and Barents seas which will have an additional positive impact upon production,” Lundin Petroleum CEO Ashley Heppenstall told Platts.

“I believe the Barents Sea will emerge over the next 10 years as an important oil province. The area including the recently settled area with Russia is a huge underexplored area,” Heppenstall said.

“However we also see continued activity on the more mature North Sea continental shelf led particularly by the exploration driven independent sector.”

Lundin is in 2012 drilling a brace of appraisal wells to get the full measure of its massive Avaldsnes discovery made last year in the Norwegian Sea. Together with Statoil’s Aldous Major South discovery–now linked together and renamed Johan Sverdrup–these two finds are estimated to contain up to 3 billion barrels of oil.

Statoil, like Lundin, will spend the rest of 2012 getting the most precise estimate it can on its part of Sverdrup with appraisal wells. But whatever the final resource figure, Sverdrup will remain massive by global standards.

Lundin is perhaps one of the standout performers offshore Norway these days. But other companies are also in aggressive expansion mode, such as Det norske oljeselskap.

Overall, oil explorers and producers offshore Norway are on a roll, with a renewed sense of purpose and a heightened sense of hope that 2012 could yield more finds–both on the NCS and in the largely untested Barents Sea in Arctic waters.

The Norwegian Oil Industry Federation, or OLF, says keen interest expressed by oil groups in the latest licensing rounds points to continued intense activity. “The Sverdrup discoveries have undoubtedly increased the interest for the mature areas on the NCS. The APA 2011 round also indicated a broad interest in mature areas on the Norwegian shelf,” says OLF spokeswoman Kristin Bremer Nebben.

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But it is the Barents Sea that most hopes are centered on.

Last year Statoil announced a new “substantial” oil and gas discovery at the Havis prospect in the Barents Sea, which contains recoverable volumes of 200-300 million barrels of oil equivalent.

That followed the Skrugard oil discovery, also in the Barents Sea, dubbed one of the most important finds offshore Norway in the last decade. Skrugard is thought to hold 150-250 million recoverable boe, while Statoil sees opportunities for further upside in the license of up to 250 million barrels–for a potential total of 500 million boe.

But whether Sverdrup and the other finds by themselves are game-changing to the long-term downward production spiral is open to debate.

Last month the Norwegian Petroleum Directorate predicted oil output in 2012 would total 93.8 million cubic meters (1.6 million b/d), down from 97.3 million cu m (1.7 million b/d) in 2011 and 104.4 million cu m (1.8 million b/d) the previous year. The trend was seen continuing until 2016 when output was put at 90.2 million cu m.

Most big players–and analysts–have to agree. “The major discoveries Sverdrup, Skrugard will not reverse the liquids production decline but decelerate it somewhat,” says Arctic Securities analyst Trond Omdal.

“Post-2020 decline of liquids production is still a major challenge,” Omdal adds, pointing also to a shift of balance in the players offshore Norway. “Smaller players will become increasingly important, but of course Statoil and Petoro will remain dominant,” he said.

“Opening of the neutral zone and success in the Barents Sea may increase interest of supermajors and slow the exodus/reduced interest in the NCS from the largest players.”

The CEO of North Energy, Erik Karlstrom, tells Platts he too sees most exploration success taking place in the Barents Sea, but also anticipates another type of action in the form of takeovers that could envelop mid-ranking players like Lundin and Det norske oljeselskap.

“Lundin’s and Det norske’s roles (in the future) are a bit in the dark. Conflicting signals have been given, and speculation is that they will sell to the majors,” Karlstrom says.

“The most encouraging news is that Shell and Exxon are coming back into the Barents Sea. They will not settle for organic growth, but most likely be on the lookout for buying positions.”—Patrick McLoughlin in Copenhagen Platts