The Years in Review

Even though 2017 was a year full of challenges for the oil and gas sector, the industry has focused strongly on developing cost-reduction strategies and on increasing the overall performance of its operations. Companies directed their efforts to increase efficiency and recovery rates, managing their resources cautiously to overcome the after-effects of the drop in oil prices in 2014.

By the beginning of 2018, oil prices trended upwards for the first time after 3 years of uncertainty. Nevertheless, it is likely that the industry will remain vigilant to variations in the market despite the positive expectations for recovery.

Investment

In 2017, major investments were made in field development, transport infrastructure, and onshore facilities in Norwegian territory. As an effect of the downturn, strong investment activity was registered in producing fields aiming to improve recovery and extend their lifetime.

The total investment made by the petroleum sector, excluding exploration, roughly amounted to NOK 122 billion and it is expected to increase slightly to around NOK 124 billion in 2018. The investments in the oil and gas sector represent around 20% of the total investments of productive capital in the country, making it the most capital-intensive industry in Norway.

The Norwegian market has maintained its attractiveness despite the challenges; the stability and predictability of the Norwegian framework, the availability of infrastructure, and the potential to find new resources have proven to be some of the main advantages of the market.

Exploration and drilling

In 2017, 34 exploration wells were drilled in the Norwegian Continental Shelf, a decline of 3 wells compared to 2016. Of the 34 wells completed, 23 were wildcat wells and 11 were appraisal wells. Activities in the Barents Sea set a new record for the region with 17 exploration wells spudded. The 24^th APA licensing round held in 2017 expanded the area substantially, in which the Barents Sea experienced the largest extension. 11 discoveries were made in 2017.

Following the drawbacks of 2014, exploration and drilling companies have faced a challenging period. E&P companies restructured their budgets and prioritized increasing the performance of producing wells. As a result, exploration costs were considerably lowered. Exploration costs in the Norwegian Continental Shelf amounted to roughly NOK 19.2 billion in 2017, representing less than half of the registered costs in 2014 and around 10% of total costs.

Source: The Norwegian Petroleum Directorate

Jack-up rig utilization rates were close to 100% in December 2014, they fell to around 34% by November 2017. In addition, in 2016, the global rig count reached its lowest level since 1999.  Lower demand led to an oversupply of rigs and companies have made numerous announcements to scrap and recycle rigs by 2020. As a result, the market has witnessed numerous M&As and divestments. For example, in 2015, Dolphin Group ASA became the first Oslo-listed company in the oil and gas industry to file for bankruptcy due to the unpredictability of the market. Borr Drilling has acquired rigs from Sembcorp Marine and Transocean. Following the transaction, Transocean acquired Songa Offshore in late 2017. Hercules Offshore divested its assets completely.

Production

According to the statistics published by the Norwegian Petroleum Directorate, the production of petroleum resources increased by 2.44% from 2016 to 2017, reaching its highest level since 2010. Natural gas and LNG production has continuously increased over the years while oil production comprises a lower share of total production in the Norwegian Continental Shelf. Furthermore, a substantial amount of commercial resources, and especially natural gas, is expected to lie in the Barents Sea. The region experienced unprecedented activity. Undiscovered resources will play a key role to maintain production rates in the future. However, the Norwegian market is maturing and total production is expected to decline from 2025 onwards. Developing new fields and large-scale intervention to improve the recovery of existing fields will be crucial to maintain production levels.