The NCS can be divided into three groups – the North Sea, the Norwegian Seaand the Barents Sea. The North Sea is the most mature area, with the first exploration drill in 1966, while the Barents Sea is the area seen as having the most future potential. Director General Gunnar Berge of the Norwegian Petroleum Directorate is very clear as to why oil companies should bid for contracts on the NCS.
At 71 degrees north latitude, Statoil is building the world’s northernmost liquefied natural gas (LNG) production facility at Melkøya, outside Hammerfest.© Statoil
“The NCS consists of areas with varying degrees of maturity, and large quantities of petroleum remain undiscovered. Many possibilities exist for finding both oil and gas. Norway has a well-established, competitive petroleum industry, predictable and transparent framework conditions, and an approachable and skilled public administration,” he says.
New Areas of Exploration
At the end of 2003, the Norwegian Ministry of Petroleum and Energy allowed for the opening of year-round petroleum activity in the southern areas of the Barents Sea, with the exception of a few specific locales. There had been a halt put on such activity for some time as authorities weighed environmental considerations.
“It is important to secure the oil industry good access to new exploration acreage. Increased exploration activity in frontier areas is essential in order to make new discoveries and to develop new fields in the future,” says Thorhild Widvey, Minister of Petroleum and Energy.
Construction personnel at work building Statoil’s Snøhvit gas liquefaction and storage facility at Melkøya.
The largest development in the Norwegian Barents Sea at the present time is being carried out by Statoil, Norway‘s leading oil company. It is the operator of the Snøhvit (“Snow White”) natural gas project outside Hammerfest, the northernmost city in the world. In this fragile arctic environment, there are no surface installations. Comprised of the Albatross, Askeladd and Snøhvit fields, the Snøhvit project is the first wholly subsea development on the NCS.
In the Barents Sea, there are also valuable fishing resources, and Statoil has to make sure that it does the utmost to protect the environment. Therefore, none of its installations will interfere with fishing, and the subsea facilities can be overtrawled. The gas will be transported to Melkøya outside Hammerfest in a closed system, minimizing the potential hazards to the environment.
Statoil estimates that the total cost for the Snøhvit project will be NOK 51.3 billion and that production from the Snøhvit field could begin as early as the autumn of 2006.
Technology Expands Production
In the more mature parts of the NCS, Norwegian oil companies take advantage of their superb abilities in the areas of new technology and human resources in order to gain substantial returns. Petoro serves as the licensee for the state’s direct financial interest (SDFI) in Norwegian petroleum operations, and Tor Rasmus Skjærpe is the group’s Vice President of Technology, the Environment and Information Communications Technology (ICT).
“I am a firm optimist regarding the future of the NCS. The reasons for this are on the one hand our huge remaining petroleum resources, and on the other a very competent human resource base of people and companies,” says Skjærpe, who stated that close to 90,000 people worked in the Norwegian petroleum industry in 2003.
The number of exploration blocks awarded and production licences on the Norwegian continental shelf is currently on the rise.
Oil companies pay lofty taxes on their production on the NCS, and some companies have argued that they would be better able to take care of the available resources if the tax rate was reduced. However, the profits from production on the NCS are still huge; among the 20 most profitable companies in Norway in 2002, nine were oil companies, three of which reigned on the top of the list. Nonetheless, oil companies still have to consider new technologies in order to retain their solid profit margins.
“Particular attention is being paid by the company [Petoro] to unit costs on the NCS,” says Skjærpe. “The technology and ICT department works in-house and with other players on the NCS to boost the use of technological opportunities to enhance efficiency and value creation, and to protect the environment. In our view, for instance, the fibre-optic network on the NCS provides opportunities for smart operation in the widest sense, which can create additional value in the order of NOK 150 billion on the NCS.”
The Norwegian government also sees the importance of increased research and development to ensure a profitable oil industry, and therefore the Ministry of Petroleum and Energy announced an increase to the allocated funds to petroleum research by over 60 percent in 2005.
“We work actively to contribute to increase the petroleum production on the Norwegian continental shelf, through stimulating higher exploration activity and increased oil recovery. A commitment to research and development within the petroleum sector is a vital element here, says Widvey.
Such focus by the government and the oil companies themselves seems to be paying dividends. The latest round of APA (Awards of Predefined Areas) production licences on the NCS, offered by the Ministry of Petroleum and Energy in December 2004, illustrated the greatest interest in mature fields on the shelf since the award system was introduced in 1999.
Mature fields are often marginal because of complex geological structures and years of production, and therefore small specialized companies buy licences from the bigger companies. Pertra AS is a wholly owned subsidiary of Norway’s Petroleum Geo-Services (PGS), and is established to pursue small-field opportunities on the NCS. The company is responsible for the Varg field close to the British sector in the North Sea.
“Ultimately, the Varg case is about to take on the role that gives the strongest contribution to value creation,” says Pertra President Erik Haugane. “The petroleum industry is facing the challenge of sustaining production profiles and adding new reserves. Increased recovery from existing fields, together with the development of already discovered but undeveloped marginal fields, is necessary to meet this challenge,” he says. Haugane adds that the depth and breadth of PGS’ expertise allows the company to tailor its role in each situation to what is required to capture value, and “nowhere else is this range of capabilities brought together better than at the Varg field.”
The unmanned Varg A rig operated by Pertra, close to the British sector of the North Sea. Pertra specializes in making marginal mature oilfields profitable.