Technology from Europe:
Norway

NPD head expects vigorous period to continue

Gunnar Berge

Gunnar Berge is director general of the Norwegian Petroleum Directorate (NPD) in Stavanger, Norway. The Ministry of Petroleum and Energy and the NPD are responsible for regulation of all phases of petroleum activities. NPD handles issues relating to resource management and administration on behalf of the Ministry of Petroleum and Energy, while it handles CO₂ tax issues on behalf of the Ministry of Finance. NPD was established in 1972, and it has a staff of around 210 that Mr. Berge supervises and coordinates.

Question: How does NPD guide Norway’s E&P industry?

Answer: The NPD is a driving force in realizing value from the resource potential on the Norwegian Continental Shelf. We do this by emphasizing long-term solutions, upside opportunities, joint and efficient operations with economies-of-scale, and by focusing on time-critical resources. We try to create joint solutions, when the proposals are too limited. The NPD is a key promoter of increased recovery from fields, including integrated operations that lower costs. Last fall, the authorities adopted a new target for resource growth on the Norwegian shelf – 5 billion additional barrels of oil by 2015.

Q: How would you describe last year’s market for Norwegian operators and vendors?

A: We are currently experiencing a period of vigorous activity on the Norwegian shelf. The high level of activity results from investments in major projects, such as the Ormen Lange and Snøhvit developments. In addition, there are investments in improved recovery projects on fields, plans for new projects on fields and a number of smaller discoveries that, in total, contribute to the high activity level.

Investments made in 2005 are estimated at nearly NOK 83 billion ($12.45 billion), excluding exploration costs. This is NOK 16 billion ($2.4 billion) more than the previous year. During the course of 2005, 16 Plans for Development and Operation (PDOs) and Plans for Installation and Operation (PIOs) were approved.

Twelve exploration wells were spudded in 2005, of which nine were wildcats and three were appraisals. Six new discoveries were made, three in the North Sea and three in the Norwegian Sea. Even though the number of exploration wells was lower than NPD had expected at the start of the year, the results were above expectations. Discoveries included completely new areas, as well as new plays in mature areas. Resource growth from exploration activities is in the range of 3 to 16 million m³ (19 to 100 million bbl) of recoverable oil and 39 Bcm to 119 billion Bcm (1.4 Tcf to 4.2 Tcf) of recoverable gas. Compared to 2004, this constitutes an increase in resource growth.

A total of 257 million m³ (1.62 billion bbl) of marketable oil equivalents was produced in 2005. This is 6 million m³ (37.7 million boe) less than the record level in 2004. Production of oil was lower last year, compared with previous years. There were 148.4 million m³ (2.56 million bopd) produced and sold in 2005, compared with 162.8 million m³ (2.81 million bopd) the previous year. This deviation is largely the result of lost production at Snorre (after the incident in late 1994), delayed start-up of Kristin and delayed drilling plans at a number of fields – basically due to the overall rig situation. The NPD is satisfied with the activities on the Norwegian shelf, but the shortage of drilling rigs leads to delays for both exploration wells and production wells.

Q: Given the current market, how much activity do you expect in 2006?

A: As regards 2006, investments, excluding exploration costs, are estimated at NOK 81 billion ($12.15 billion). In addition, we estimate that NOK 12 billion ($1.8 billion) will be spent in connection with exploration. 

The authorities expect to receive approximately 10 PDOs for developing discoveries in 2006. In addition to these, amended PDOs are expected for several fields in operation. Reopening of several abandoned fields may also be proposed. In contrast to the projects approved in 2005, about one-half of the investments in new discoveries may be linked to new production facilities.

We expect a total of 20 to 30 exploration wells in 2006, of which 20 to 25 will be drilled from mobile facilities, and one to five from permanent installations. The lack of rig capacity means that several exploration wells probably will be postponed.

Q: What are some current industry initiatives and projects for which the NPD is playing a role to improve Norway’s E&P sector?

A: The opportunities for increasing value creation from mature areas is an issue that NPD has focused on. In principle, mature areas include all fields currently producing on the shelf or, in other words, areas with developed infrastructure, such as platforms and pipelines. Potential value can lie in improving field recovery, making discoveries close to the field that can be tied in to existing infrastructure, or finding other solutions that extend a field’s economic life, like more cost-effective operations, e-field technologies, etc.

On this basis, the authorities have initiated a project called Potential Value in Mature Areas. The Ministry of Petroleum and Energy and NPD have presented a new system to evaluate operations on the Norwegian shelf. Features of the new system include dialogue with companies on resource growth, production, investments, exploration and a number of qualitative parameters.

In 2004, Storting White Paper No. 38 placed the authorities in the forefront of an initiative to promote integrated operations in fields on the Norwegian Continental Shelf. NPD set up the e-drift forum (integrated operations forum), a meeting place for oil companies, suppliers, authorities and trade unions. Other areas where NPD is involved include development of new methods for improved recovery, subsea technology, and drilling and well technology. We accomplish this, in part, by participating on boards and management committees for major international research initiatives, such as OG21, Petromaks and Demo 2000. NPD is also involved in a major project initiated by the authorities, in relation to the northern areas.

Q: Are there more programs that your government could initiate to encourage activity? Have you opened up enough additional tracts, and is taxation policy reasonable?

A: The authorities are looking into means of ensuring more drilling activity and more well repair/ upgrade work. This is a worldwide problem of equipment and personnel, so it needs to be looked at in a larger context.

The authorities have come a long way in adapting the award of new exploration acreage to the needs of the industry. In 2003, for example, a system was introduced for awards in predefined areas, the APA awards.

In APA rounds, the authorities predefine an area where production licenses are awarded annually. The area is fixed and will be available for the industry in the coming years. The APA area is expanded as new areas mature. New licenses awarded under the APA system will include work obligations that encourage rapid, efficient exploration. This will increase acreage turnover in mature areas. The first awards under the APA system were made in December 2003. In total, three APA rounds have been held on the NCS. In APA 2005, 26 companies were awarded participating interests in 45 production licenses. The extensive awards underline that mature parts of the NCS are very attractive in an international context.

Parts of the North Sea, and most of the Norwegian Sea and the Barents Sea are frontier areas. At present, the policy is to carry out a licensing round in frontier areas every second year. So far, 18 numbered licensing rounds and one special round in the Barents Sea have been completed in frontier areas. The 19th licensing round was announced in June 2005, and awards are planned at the end of first-quarter 2006.

A main element of the authorities’ licensing policy is that it must be both predictable and stable. The same criteria apply to the tax system. Minor adjustments were made to the tax system in 2004, in part to increase exploration activity and to attract new players to the Norwegian shelf. The authorities are concerned with maintaining predictability, unlike what we have seen in certain other countries when the price of oil is high.

Q: Can you name and describe projects that are good examples of upstream technical work involving Norwegian companies?

A: The two biggest projects on the NCS are now Ormen Lange in the Norwegian Sea and Snøhvit in the Barents Sea. Both are subsea developments, where gas is routed by pipeline to land facilities. Both of these developments represent breakthroughs for Norwegian subsea technology.

Kristin gas field in the Norwegian Sea was developed with a subsea production facility that transfers the wellstream to a semisubmersible processing facility. The greatest challenge on Kristin is the extremely complex reservoir with high pressure and temperature.

Tordis oil field, which came onstream in 1994, is another exciting example of outstanding Norwegian technology. The field’s lifetime has been significantly extended using subsea separation, compression and injection.