A Northern Light: Norway Market Report

Norway’s North Sea, Norwegian Sea, and Barents Sea are together the world’s most capital- intense oil-gas market. A fifth straight record year of investment is forecast here, and exciting new discoveries include the biggest oilfield found anywhere in 2010. New Arctic finds are enticing newcomer oil companies, and the barometers of industry health, like drill rigs, point to growth in this oil-rich land of five million.

s we compile this report, investment estimates are soaring. Another record year is forecast for 2013 by pollsters, Statistisk Sentralbyrå. Pumping up investment numbers are big new discoveries and projects: Johan Sverdrup (3.3 billion barrels of oil equivalents); Aasta Hansteen (60 billion cubic meters of gas); Ivar Aasen (100 million barrels of oil, 3 billion cubic meters of gas); Dagny (300 million barrels of oil equivalents); and Martin Linge (190 million barrels of oil equivalents). In all, some $35.77 billion will be injected offshore Norway next year, a spike of 15 percent over 2012.

Supplier costs once accounted for spending hikes, but the new feast for suppliers comprises more new exploration, new development, more modifications, and an onshore buildup aimed at bringing infrastructure northward from the “mature” North Sea to the craggy coastline and pristine waters of the Norwegian and Barents seas.

Age of Giants

Pumping up expectations for another 40 years of offshore growth is the Lundin Norway discovery, Johan Sverdrup, where stately Norwegian oil company Statoil and Denmark’s Maersk Oil are partners. As the largest Norway find since the 1980s, the 2010 Sverdrup discovery is being appraised by drill rigs, and already a steel production platform is envisioned.

Just 25 kilometers from Sverdrup is the North Sea field, Edvard Grieg, where Lundin and newly interested German outfits, RWE Dea and Wintershall, are partners. This 2007 oil discovery of 149 million barrels was just given Norwegian parliamentarian approval. Lundin’s Plan for Development and Operation includes satellites Tellus and Luno South. Apart from shaping future designs at Sverdrup, Statoil—three-quarters state-owned and in control of 80 percent of all acreage—has renewed wealth across the Norwegian Continental Shelf with new finds and increased oil recovery projects. As we compiled this report, Statoil was swapping 100 million barrels of oil equivalents in four licenses with relative newcomer Wintershall for more of the Sverdrup zone called Utsira High. The $254 million deal brings Statoil into the Grieg license with Wintershall and BASF, German marketers of oil and chemicals, including some used to increase oil recovery, a key Statoil aim. Grieg is gearing up to produce in the fourth quarter of 2015.

Long-Term Province

While the Grieg deal proves well-financed, newcomers in Norway can gain the production they need and deal with Statoil. Wintershall, which entered Norway in 2008 by acquiring successful minnow Revus, comes closer to its goal in acquiring Statoil’s Brage equity.

“Brage would be our first producing operatorship in Norway and plays an important role in our growth story,” says Bernd Schrimpf, managing director of Wintershall Norge.

The heads of Norway’s other small and medium-sized companies have all made similar declarations about growth ambitions in Norway. Wintershall operates 25 platforms in other North Sea countries, but in Norway it has sprouted by 40 licenses to be one of the largest area license holders. The modest Schrimpf’s major recent successes include the Maria and Skarfjell discoveries. “We believe in the potential of [ Norway],” he says, adding, “We want to invest here for the long-term.”

Statoil, meanwhile, is flush with $33 billion in cash from core operations and fresh with success at the Geitungen appraisal well, which, in September 2012, showed, like Sverdrup did, that the North Sea was not “mature.” The cores taken by the drill rig Ocean Vanguard oozed oil from Geitungen’s 35-meter oil column. The good reservoir showed Geitungen’s 270 MM BOE is in contact with the giant Svedrup structure. The geological model for Sverdrup, developed by Lundin, has revitalized exploration offshore Norway. Geologists now study areas they once thought valueless.

Rig Barometer

With a tax regime that refunds all exploration costs bringing dry wells, explorers in Norway can be bold. Boldness is required, as wells range between $85 million and $100 million. Yet, drilling here has never fully slumped as it has for periods in other oil regions. Despite a 78 percent overall tax and royalty count, the drill count is high, and 2013 is seen as bringing $7 billion in exploration spending, or up by about 25 percent over 2012. If you include production wells, then $17.89 billion will be spent. Five mobilerigs arrived in Norway this year, with two more due in 2013, a Sentralbyrå survey suggests. Statoil alone is planning nine wells in 2013 near its Barents Sea discoveries, including the new Skrugaard gas find, which has spurred interest from French companies Total and GdF.

Incentives have produced $500,000-a-day day rates for rig fleet owners Transocean, Seadrill, and Fred. Olsen Energy ASA’s business Dolphin Drilling. The latter has just agreed with an  Asian yard and an oil company to build a semi-submersible drill rig for northern waters and to drill wells for five years and $1.1 billion. Three Dolphin rigs are now under contracts off Norway and quarterly revenues are up around $350 million. None of locally-based Seadrill’s three semi-submersible drill rigs plying Norway are available before July 2015. Emphatically voicing its financial strength, Seadrill just scooped up a 68 percent stake in Asia Offshore Drilling Ltd. Rig giant Transocean has seven rigs in Norway. None earn less than $398,000 per day.

High day rates are one reason Rowan Drilling also wants into Norway. Despite compliance hurdles, Rowan chief executive Matt Ralls says his rigs will be in Norway by 2014.

“I’ll try to make a compelling argument for being able to drill in your pristine waters,” Ralls says. Just nine of 200 rigs recently built worldwide can work in Norway due to stringent health and safety rules here. Four of Rowans new rigs are “Norway ready.”

Economies of Scale

While 2013 now looks set to bring $28 billion in spending for new fields and fields in production, that total could grow. More government go-aheads for new developments are expected in the summer of 2013. The largest of these are Aasta Hansteen, Draupne and Dagny. Aasta Hansteen will be Norway’s first spar platform development and will start large-scale gas-infrastructure projects for a new deepwater province in the Norwegian Sea. That buildup starts in 2013 with about $877 million in pipelines and onshore plant. Another new buildup underway is at the Martin Linge field, where the Norwegian business of French Total isassembling a jacketed production platform for a complex gas and oil field set to flow in 2016 with gas via pipeline across the border to Scotland and oil via shuttle to worldwide markets. Total has also made a discovery at Norvar in the frigid Barents Sea, where its partners are relative minnows, North Energy and Rocksource.

Swedish independent Lundin, too, has smaller arctic players as partners in Noreco and the local business of Spring Energy. Together they have drilled the Barents Sea prospect Snurrevad-Juksa with the Transocean Arctic semi-submersible rig. Nearby, a new border deal with Russia recently opened for exploration a maritime area the size of Europe. Seabed surveys have been ongoing and, in January 2013, the world will know what riches Norway and Russia have amicably split.

For large and small in Norway, growth is the only forecast.