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Prospects for the Norwegain continental shelf revealed in new offshore report


Graph showing statistics

Simply cancelling exploration and brownfield projects wasn’t the solution for the NCS. While some, smaller scale projects have been taken off the ‘to-do’ list due to them being financially unfeasible, such as Vette and Tommeliten Alpha fields, the larger projects are being kept dormant for when the market picks up.

A great example of this tactic is Statoil’s Johan Castberg in the Barents Sea, a marginal sea of the Arctic Ocean. With a potential volume estimate of 600 million barrels of oil, this was a project worth deferring, instead of cancelling due to a lack of budget. The largest brownfield development in the pipeline on the NCS, according to Wood Mackenzie, will begin work at the start of 2018.

In this time, Malcolm believes the market will come good with supply chain cost reductions and an investment boost from operators, to make 2018 the ideal time to begin brownfield projects. And with the Norwegian Petroleum Directorate forecasting (on the graph above) that production on the NCS will continue to drop until 2020, despite only 47% of resources being recovered in the region, this investment is welcome news for Norway.


WoodMackenzie graphic showing sector specific cost deflation 2015-2016

‘Profitability’ has become a scarce word over the last few years in the industry. To get somewhere near a pre-2013 profit point, operators have responded on the Norwegian Continental Shelf by wiping $50 million of CAPEX from the profile of the region until 2020. A combination of ceased assets, scrapping new projects, and severely reducing operating costs and drilling days on existing platforms has helped reduce costs and gain better profit margins.

But was the supply chain ready to respond with their own cost-cutting measures to provide a quality service to operators, while keeping themselves afloat? The answer, yes.

As evidenced (on the graph above) from Wood Mackenzie, operators were particularly bullish about cost reduction on subsea equipment and services, as well as rigs, drilling, logging and completions. Subsea equipment, for example, saw cost reductions of 21% by the operator in 2015-2016 – in the next 12 months, it is anticipated that these costs will reduce by another 8%.

The supply chain in the subsea industry has responded by initially reducing their costs by 14%, with another 3% forecast in the next 12 months. For sectors such as reservoir data, consumables, and logistics, the supply chain has gone above and beyond to keep operators interested in their services, by reducing their costs far beyond what operators have done themselves.


Charts from WoodMacKenzie showing varying FID years and expected FIDs per year and capex

Deferred, profitable projects combined with cost reduction means only one thing – investment will follow. A more streamlined industry, according to Wood MacKenzie will open the doors to more final investment decisions (FIDs), but the timing of these is absolutely crucial.

With subsea projects on the NCS expected to hit the lowest possible CAPEX and OPEX figures in 2017, investment beyond this period on brownfield projects seems like the sensible solution. However, with companies still under pressure to protect cash flow and shareholder distributions, making this investment may be easier said than done.

Malcolm pointed out in his presentation that despite this conundrum for operators, the amount of expected FIDs is set to jump in 2018 from four to six decisions on the Norwegian Continental Shelf, although these decisions were not disclosed in the report. While costs are ‘optimised’, operators are clearly making use of a favourable market to invest in new explorations or existing assets. As Malcolm describes of operators who choose to be counter-cyclical, “Only the boldest companies are able to invest through the downturn”, but the returns are certainly there to take advantage of on the NCS.


There isn’t a region that hasn’t been affected by the low oil price, but the Norwegian Continental Shelf is well on its way to recovering and reinvesting. Costs have come down, more FIDs are to be made in the next three years, and because of this, a demand spike in Norway is expected in 2018/2019 if oil prices begin to recover.

Combined with the consensus that demand for supply chain services in the subsea sector is expected to pick up in mid-2017 onwards, it is fair to say that the future of projects on the NCS are looking very favourable indeed.

Photo credits: ONS, Norsk PetroleumWoodMackenzie

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