Technology from Europe: Norway

Minister remains pleased with Norwegian achievements

 Jens Abrahamsen, Bj�rge AS (Naxys), Bergen, Norway

Odd Roger Enoksen is the Norwegian Minister of Petroleum and Energy, based in Oslo. His principal responsibility at the ministry is to achieve a coordinated and integrated energy policy. A primary objective is to ensure high value creation through efficient and environment-friendly management of Norway’s energy resources.

Question: What is the ministry’s role with respect to Norway’s E&P
industry?

Answer: The overriding objective is to ensure the highest possible value creation in the petroleum sector while safeguarding the environment and constantly improving the HSE performance. Thus, the ministry’s main role is to formulate policies for natural resource management that allow for the realization of such a goal. It would not be possible to utilize the full potential of our resource base without the combined efforts of a competent national and international oil and gas industry. It has always been an important aim in our petroleum policies to attract the best of international competence, and to stimulate co-operation with our domestic oil and gas industry. This means that framework conditions need to be attractive for the industry to invest in Norway. Key words are stability, transparency and predictability.

In addition, we emphasize incentives for research and technology development in Norway. We aim to be in the technological forefront in areas that we consider to be of specific strategic value. The government also sees a role in supporting our national industry in going international. Only an internationally competitive industry can be sustainable in the long term, i.e. the industry should be independent of the resource base on the Norwegian Continental Shelf (NCS).

Q: How well did Norwegian operators and equipment/service firms do in 2006? Was your government satisfied with the amount of E&P activity, both inside and outside Norway?

A: Generally speaking, the E&P business has been thriving, both inside and outside Norway, due to a rising demand for energy and a high oil price. I think the supply industry, in particular, has been able to take advantage of a buoyant market. For instance, the international sales of the Norwegian-based supply industry have been growing substantially. For oil companies, the picture is more mixed, because some markets show signs of overheating. This implies higher prices in many parts of the supply chain (steel, manpower, etc.) and bottlenecks with regard to rig capacity.

On the NCS, investments during 2006 are estimated to be NOK 85 billion, excluding exploration costs. This is NOK 2.5 billion (3%) more than forecasted in the spring of 2006. Combined with modifications and maintenance (OPEX), the total expenditure level in Norway will be surpassed only by the US Gulf of Mexico in the next three years, according to studies by Douglas Westwood.

Twenty-six exploration wells were spudded in 2006. Of this total, 18 were wildcat wells, and eight were appraisals. Four new discoveries were made. The number of exploration wells has doubled compared to 2005. However, fewer wells were drilled than planned, due largely to the shortage of rigs.

Q: Based on your assessment of last year, and assuming continued high prices, what investment level do you expect for 2007?

A: For 2007, investments excluding exploration costs are estimated at NOK 82 billion. In addition, it is expected that NOK 23 billion will be spent in connection with exploration. The OPEX level is expected to be in the range of NOK 30-35 billion.

Odd Roger Enoksen

Q: You must be very pleased with the Awards in Predefined Areas (APA) 2006 round. Please review the results for our readers.

A: The high level of activity we observe on the NCS today is, among other things, a consequence of the last few years’ successful APA rounds. The 2006 APA round, awarded at the end of January, was very positive as well. Forty-eight production licenses covering 85 blocks or parts of blocks were offered to the companies. Never before have so many licences been offered on the NCS. It is encouraging to observe that out of the 33 companies to which we offered licenses in this year’s round, eight firms were newcomers to the NCS.

The APA arrangements began in 2003 and have been awarded on an annual basis. Every year since the introduction, the number of applicants and production licenses, and amount of acreage awarded, has increased in each round. The large interest for these rounds demonstrates that there is sizeable potential in proving new, smaller resources close to existing infrastructure in the mature areas of the North Sea, the Norwegian Sea and the Barents Sea.

Q: You have already announced the APA 2007 round. Compared to offerings in APA 2006, there is no expansion in the North Sea or Norwegian Sea. However, there are 13 extra tracts in the Barents Sea. Can you explain the thought process that went on in constructing this round? What do you hope to accomplish?

A: The idea behind the APA system is to designate large, predefined exploration areas that encompass mature areas on the NCS. Once the area has been made available for exploration activities, it will not be taken back. The predefined areas will only be expanded.

The Barents Sea was closed for new petroleum activities in 2002 and 2003, due to the ongoing work with the Integrated Management Plan for this sea area. The plan is a pioneering effort to achieve an ecosystem-based management of the oceans surrounding Norway. The Integrated Management Plan also gives guidelines for where petroleum activities shall take place.

Given this background, APA 2007 was a good opportunity to give the industry access to new, prospective acreage in the Barents Sea. I believe it is very important to develop the Barents Sea as a petroleum province. The Norwegian government has had a sharp political focus on the opportunities in the High North ever since it came into power in October 2005.

Through the APA rounds in recent years, very large areas in the North Sea and Norwegian Sea have been made available for exploration. Predefined areas now cover most of the areas in the North Sea opened for petroleum activities. Thus, large areas are now open, for which companies can apply.

The reason that we introduced the APA system was that we wanted to ensure sufficient attention toward mature areas. It is important to not expand the APA area so rapidly that focus on the central mature areas is lost. Therefore, when I announced APA 2007 earlier this year, I did not find it right to expand the predefined areas in the North Sea and the Norwegian Sea. However, if we decide later on that it is right to expand the predefined areas, it will be easy for us to do so, as there is a new round every year.

Q: By how much do you think that high oil and gas prices have enhanced the market share of Norwegian service/supply firms?

A: The oil price has been an important driving force when it comes to bringing about international business opportunities. To quantify this effect is difficult. The high growth in international sales generated by the Norwegian supply industry has not taken away their focus on the NCS. Norwegian companies are expanding internationally, even if the home market is buoyant. This indicates that the supply industry is competitive in the global market.

Q: Is the Norwegian government doing all that it can to encourage E&P activity? Are there other initiatives that officials should undertake?

A: Currently, we observe that companies show a high interest in exploration activities on the NCS. The limiting factor is not a shortage of companies but rather lack of capacity. In general, there are too few rigs and seismic ships available. It is up to the petroleum companies to meet these challenges.

To attract new companies to the NCS, we introduced the system of prequalification of companies in 2000. Thus, companies seeking licences in Norway are informed as to what extent they fulfil the necessary requirements to be an operator and/or licensee on the NCS. From the scheme’s inception to January 2007, 47 companies have been prequalified. Many of them now hold licences or parts of licences. The popularity of the arrangement shows that the NCS is still able to attract oil companies.

Q: Can you provide the latest news about the efforts of Norwegian firms to improve the oil recovery rate from existing fields? How is that progressing?

A: Improved oil recovery has a high priority in our policy. The activity level on the NCS is high. We have seen a considerable increase in investments during the past few years. About 70 % of the investment in the period from 2007 to 2011 will take place in existing fields. This indicates that the companies are focused on improved oil recovery. In addition, we expect seven new fields to come onstream in 2007. I therefore think that the companies make a great effort in both improving oil recovery and developing smaller fields. We also have stated a specific target for improved oil recovery of 5 billion bbl by 2015.

Q: What are some major field projects that exemplify Norwegian firms’ technical offerings/expertise?

A: Norwegian oil companies and the supply industry, with Norwegian research institutes and academia, have been very instrumental in realizing important technological breakthroughs within upstream oil and gas technology. Subsea technology is one area where Norwegian competence is in the lead worldwide, with respect to actual field development solutions, project execution and operations. Statoil operates the greatest production from subsea fields worldwide, and the Norwegian supply industry is a clear market leader globally within this area.

The two most recent examples of cutting-edge projects on the NCS are Ormen Lange field and Snøhvit field. Both projects represent critical building blocks for future field developments on the NCS, and internationally. In particular, the technologies applied in these developments offer new experiences within so-called “subsea to beach” field developments. In this way, technical solutions enable extended use of multiphase transport over longer distances to onshore processing facilities, in combination with subsea field solutions.

Q: What are the some more significant technical trends at present?

A: Development of Arctic oil and gas represents a major opportunity for the upstream businesses, and, therefore, also constitutes an important technology trend for the industry in general, as well as for Norwegian activities. The experiences from new subsea fields on the NCS, and worldwide, will be critical to providing the technological learning curve that the industry needs to access, to be able to operate in such demanding environments.

Brown field developments, such as extending field life through tail end production and EOR, is another major trend that is emerging. This is very much driven by the high oil price that makes such projects more attractive for the industry to pursue than before. Achievements within IOR/EOR technology are a long standing pioneering experience from the NCS that will be a valuable asset in future industry development. EOR is also becoming more important in relation to carbon sequestration, where the CO2 may be injected into NCS oil fields to increase future production and thereby enhance oil supply from the NCS. Carbon sequestration and reinjection will also contribute to dealing with global climate challenges.

Snøhvit is the first major development on the Norwegian Continental Shelf with no surface installations.

Q: Is the Norwegian administration concerned about places of geopolitical instability and the effect they may have on E&P activity?

A: According to the International Energy Agency (IEA), global energy consumption in their base scenario is expected to grow more than 50% between now and 2030. Huge investments are needed to meet that demand. The IEA’s assumption is more than $20 trillion in the period from 2005 to 2030, of which oil investments account for $4 trillion dollars, including two-thirds upstream.

However, the physical and financial resources should be sufficient. The critical issue is whether decision-making and timely investments will be made. Lack of spare capacity, geopolitical instability and fear of shortages in supply have again influenced oil price development and contributed to higher prices. The producers are as dependent on consumers, as consumers are on their suppliers. It’s in the producer countries’ own interest to be stable suppliers of oil and gas, and thus secure the market for their products. After all, most producers are heavily dependent on their export earnings.

Q: How does Norway feel about OPEC’s attitude toward output levels and prices? Is this helping or hurting E&P activity?

A: Norway favors stable oil and gas markets. Stable market conditions encourage investments and also diversification in supply, which is important to consumers. I do think that OPEC plays an important role in stabilizing the market, i.e. keeping spare capacity.

Q: Toward which international areas are oil and gas company interest, and investment money, moving?

A: Money will move where investors make a good return when risk is accounted for. Not all places are truly open and/or provide acceptable terms to international companies. But all the same, competition is tough among petroleum producing countries. With regard to Norway, there are still substantial volumes of oil and gas to be produced, as only 35% of our resources have been produced so far. A strong indication that the NCS is an attractive investment area is the increasing number of oil companies establishing themselves in Norway.