Interim report – activity rising again in the petroleum industry following turbulence in the first months of the year

This spring, based on the extraordinary situation in the oil market, the Government decided to cut oil production as of June and through the rest of the year to contribute toward more rapid stabilisation of the oil market than what the market mechanism alone would have ensured. The Storting has also adopted temporary changes to the petroleum tax system to improve liquidity for the petroleum industry and better facilitate the companies in implementing planned investments. This will contribute to maintain activity and provide assignments for the supplier industry.

"There is still a basis for high, long-term value creation on the Norwegian shelf. The political decisions have helped stabilise an extraordinary and demanding situation. The temporary change will contribute to a continued high activity level, on par with what we forecasted before the pandemic and the drop in the oil price," Director General Ingrid Sølvberg says.

Following a clarification of the temporary change in the Petroleum Tax Act, two plans for development and operation have been submitted to the authorities for approval. These are the partial electrification of Sleipner and Hod re-development. It is also encouraging that the partners in the Krafla/Askja area have agreed on plans to develop the resources here.

"At the same time, we have noted that exploration activity has declined and will be lower this year than we presumed in January. However, we are experiencing that the companies are not cancelling exploration wells, but rather postponing them until next year," says Sølvberg.

Production
At the end of April, the authorities decided to cut Norwegian oil production by 250,000 barrels per day in June and by 134,000 barrels per day in the second half of the year. This was done to help stabilise the oil market faster, which is important out of consideration for sound resource management and the Norwegian economy.

The NPD has assisted the MPE in its work on regulating production. Production from gas and condensate fields, transboundary fields with short remaining production lifetimes and mature fields will not be cut.

Read more about the production regulation here.

Total petroleum production in the first half of 2020 amounted to 115.2 million standard cubic metres (Sm3) of oil equivalents (o.e.). This was distributed across around 49.1 million Sm3 of oil, 56.7 billion Sm3 of gas and 9.4 million Sm3 of NGL and condensate.

In spite of the consequences of Covid 19 and the production regulation, oil production was around 11 million Sm3 higher than in the first half of 2019. This was primarily caused by the first phase of Johan Sverdrup starting full production this spring. The field has proven to deliver beyond initial forecasts.

Gas sales for the first half of 2020 are 4.6 billion Sm3 lower than the corresponding period last year. Gas prices have been low recently, and production is adapted to such market fluctuations.

84 new development wells have been drilled so far this year; this is close to the same level as last year. Drilling wells is the single most important measure toward increasing recovery, which means that it is crucial to drill more wells.

"The companies are doing good work to create value on the fields. This work must continue, fields must be operated efficiently – the companies also have to develop, test and utilise new technology to improve recovery and cut emissions", says the NPD's Director for Development and operations, Kalmar Ildstad.

As of 30 June, 88 fields were in production; 66 in the North Sea, 20 in the Norwegian Sea and two in the Barents Sea. Two new fields have come on stream so far this year, Skogul in the North Sea and Ærfugl in the Norwegian Sea. Both are subsea developments tied into existing fields. Skogul is tied into the Alvheim production and storage vessel via the Vilje field. Ærfugl, which is being developed in two phases, is tied in to the Skarv production and storage vessel (FPSO). Both fields are operated by Aker BP.

Cessation plans
The Gyda field in the North Sea, which is operated by Repsol, shut down on 29 February this year after producing for 30 years, more than ten years longer than expected when the development plan was approved.
So far in 2020, cessation plans have been submitted for Heimdal, Vale and Knarr, all in the North Sea.

Development
Eighteen development projects are under way; twelve in the North Sea, five in the Norwegian Sea and one in the Barents Sea. These represent a multitude of new facilities, minor discoveries that utilise existing infrastructure and major improved recovery projects on mature fields.

Several of these developments could be delayed as a result of the Covid 19 restrictions, for example the use of foreign labour and limits on the number of people in a workplace. This could impede progress in development projects.

Total investments for these projects amount to more than 300 billion 2020-NOK, and overall recoverable resources are estimated at more than 833 million standard cubic metres (Sm3) of oil equivalents.

In addition to these projects, around 100 discoveries are still being evaluated, and have not yet submitted a plan for development and operation (PDO) to the authorities.

"The NPD is concerned with maintaining progress in all profitable projects, even those not yet initiated. We're particularly concerned with the time-critical projects that depend on existing infrastructure, where postponements can lead to the loss of profitable resources, not only postponed production", Ildstad says.

The authorities have received three development plans so far this year; partial electrification of Sleipner, re-development of Hod and the CCS project Northern Lights. Northern Lights is part of the first Norwegian full-scale project for transport and storage of CO2 (Carbon Capture and Storage (CCS)).

Read more about the Northern Lights project and CCS here.

Many projects are under consideration; among others things, PDOs are expected from Breidablikk, Troll electrification, Gråsel and Blåbjørn-Lysing in 2020.

Power from shore
Considerable efforts are being made to reduce emissions from the activities. In addition to energy efficiency measures, a number of major power from shore-projects could provide a substantial contribution toward reduced CO2 emissions.

Today, eight fields on the Norwegian shelf receive power from the Norwegian power grid. Decisions have also been made to supply another eight fields with power in this manner. This means that total CO2 emissions will be about 3.2 million tonnes lower per year than they otherwise would have been.

An additional six electrification projects are approaching an investment decision. If they are adopted, the avoided emissions will amount to approx. 4.9 million tonnes of CO2 per year. The Norwegian Petroleum Directorate's projections show that, at this point, more than 50 per cent of Norwegian petroleum production will be run on power from shore in the mid-2020s.

These were the findings in the report Power from shore to the Norwegian shelf, which was prepared by the NPD in collaboration with the Norwegian Water Resources and Energy Directorate, the Norwegian Environment Agency and the Petroleum Safety Authority. The report was submitted to the Minister of Petroleum and Energy at the end of June.

Read more about the report here.

Technology award for improved recovery
Every two years, the NPD gives out the IOR award (Improved Oil Recovery). This is a prize for creativity, persistence, appetite for risk and enterprise as regards utilising methods and technology to increase profitable oil and gas recovery beyond what can be expected based on existing plans and methods. The prize was first awarded in 1998.

This year, there were 24 proposed candidates. Three finalists have been nominated, the licensees on the Grane field, researcher Geir Evensen and oil company Lundin. The prize will be awarded in late August/early September.

Read more about the candidates here.

Exploration wells
Twelve exploration wells were completed in the first half of 2020. Ten of them were wildcat wells. Five discoveries were made; three in the North Sea and two in the Norwegian Sea.

"It's positive that discoveries are still made in every other well. This shows how important it is to keep exploring on the Norwegian shelf", says Director Exploration Torgeir Stordal.

Wintershall Dea made the largest discovery so far this year as operator of production licence 836 S. Between 4 and 15 million Sm3 of recoverable oil equivalents was discovered in Bergknapp, which is located in the Åsgard area in the Norwegian Sea.

The second half of the year is also off to a positive start with three discoveries near infrastructure in the North Sea.

“This confirms that there is still a significant potential for making profitable discoveries near existing infrastructure,” says Stordal.

The NPD expects that about 30 exploration wells will be drilled in 2020. This is fewer than previously expected, primarily due to delays in connection with COVID-19. 58 exploration wells were drilled in 2019.

"We've noted that as many as 12 exploration wells have been postponed for operational and preparedness reasons in connection with the ongoing pandemic. We expect these wells to be drilled as soon as possible, and no later than during 2021. It also seems that five other wells could be postponed; this is a type of postponement that we always account for in our forecasts", says Director Exploration Torgeir Stordal.

Coexistence at sea
The value of dialogue and good communication between the industries using the ocean was the topic in January when the NPD hosted the very first joint authority conference for the seismic industry. This conference was a fine opportunity for the authorities to give advice and information to ensure good planning for the annual geophysical surveys, thus ensuring the best possible coexistence with the fisheries.

"In our experience, early contact between the parties will reduce confusion and leads to smoother implementation of surveys. This will contribute to higher value creation for both the petroleum and fishery industries", Torgeir Stordal says.

Read more about the key to good coexistence at sea here.

Awarding acreage in pre-defined areas (APA) and licensing rounds
In mid-January, 28 companies were offered a total of 69 new production licences in APA 2019. The industry expressed significant interest in the most recent APA round as well.

Read more about APA 2019 here.

APA 2020 was announced in June with an application deadline of 22 September 2020. In this year's APA, the pre-defined areas were expanded by 36 blocks in the Norwegian Sea. Awards are expected in the first quarter of 2021.

Read more about APA 2020 here.

In June, the Ministry of Petroleum and Energy presented proposed areas to be announced in the 25th licensing round. The proposal covers eight areas in the Barents Sea and one area in the Norwegian Sea with a total of 136 blocks / parts of blocks. The deadline for comments is set at 26 August 2020, and the aim is to set an application deadline for early next year and awards in the second half of 2021.

Management plans
The Norwegian Petroleum Directorate participates in the Expert forum for comprehensive management plans, an advisory group in the work on comprehensive and ecosystem-based stewardship of the sea. The expert forum is responsible for preparing the overall technical basis for updating and revising the management plans.

Before the summer, the Storting adopted the management plans for the Norwegian ocean areas – the Barents Sea and ocean areas off Lofoten, the Norwegian Sea, the North Sea and Skagerrak. The objective of the management plans is to facilitate value creation through sustainable use, and at the same time maintain environmental assets in the ocean areas.

The measures adopted by the Storting include a new definition of the extent of the ice edge zone in the Barents Sea. This decision has a very minor impact on the part of the Barents Sea that is open for petroleum activities and will have no consequences for awarded production licences in the Barents Sea.

The forum has started its review of particularly vulnerable and valuable areas (SVOs), and new relevant areas may be considered. The work will be complete by 2022.

Pre-qualified companies
Oil company Sval Energi was qualified as an operator on the Norwegian shelf in the first half of 2020. The authorities are currently processing applications from seven companies which have applied for pre-qualification as licensee or operator. These are: JAPEX, NCS E&P, Edge Petroleum, M West Energy, Antares Norge, Horisont Energi and HAV Energy.

Seabed minerals
The new Act relating to Seabed Minerals entered into force on 1 July 2019 and prescribes the NPD as the resource management authority for seabed minerals. The Act is based on the regulatory regime for oil and gas. The Government has decided to initiate an impact assessment for mineral activities on the Norwegian continental shelf. As part of this work, the NPD is mapping mineral deposits and will prepare a resource assessment based on this mapping.

The NPD implemented a systematic mapping of seabed minerals in deep water in the Norwegian Sea in both 2018 and 2019, and the work continues with full force this year.

One expedition has already been completed in collaboration with the University of Tromsø. This expedition acquired seabed data across the southern parts of the Knipovich Ridge using the research vessel "Kronprins Haakon".

An expedition is under way to the Mohns Ridge in collaboration with the University of Bergen (UiB) and the K.G. Jebsen Centre for Deep Sea Research, which is acquiring data using the research vessel "G.O. Sars".
The NPD is also planning a separate expedition to the Mohns Ridge in August-September to collect core samples for information about mineral and metal content in the subsurface.

The UiB has analysed 21 sulphide samples from the NPD's own expedition to the Mohns Ridge last year, and the results will be part of the resource assessment.

See video from the expedition here. 

The Norwegian Petroleum Directorate is now preparing a proposed programme for an impact assessment for mineral activities.

Digitalisation
The NPD is responsible for long-term storage of data from the Norwegian shelf and for making this available to interested parties and users. Diskos is the national database for exploration and recovery-related information from the Norwegian shelf, such as well data, seismic and production data. Work has been under way over the last two years to digitalise as much as possible of the documentation available from the wells on the Norwegian shelf, and this work will continue at full force.

Work is now under way on further development of Diskos, Diskos 2.0. The new solution will give the users (companies, research institutions and others) access to data, so that they can work directly with the data where they are, instead of downloading locally, as is the case today. We expect to award the contract for Diskos 2.0 in October.

New Director General
Ingrid Sølvberg took up the appointment of Director General in January 2020. She has initiated efforts to recruit management in permanent positions and to adjust the organisation.

These management positions were announced both externally and internally due to a new law concerning state employees. This law prescribes that the management rotation system, which the NPD has used for the last 20 years, must be ended.

The organisational adjustment aims to enable the NPD to conduct its civic role in an even better, more efficient way in a time of changing activities on the shelf and tighter budgets.

Six managers have now been recruited for the senior management team, and are expected to assume their new positions in the autumn.

Read more about the new senior management team here.