Norway’s oil and gas industry had a disappointing production year in 2018, having fallen short of forecasts, but can find comfort in the positive trends seen in exploration and field sanctioning.
Preliminary numbers from the Norwegian Petroleum Directorate (NPD) show that 542 million barrels of crude oil were produced in Norway last year, 4.4% below the 567 million barrels forecasted by NPD at the beginning of the year and 6.5% below 2017 production.
Looking at monthly crude oil production, actual output did not reach forecasted volumes at any time during the year. Especially noticeable in the chart are the May and September production numbers, which were respectively 8.7% and 12.3% lower than expected, representing the greatest deviation from the forecast in 2018. As operators usually conduct major maintenance programs during the summer months, some decline in production is expected. However all planned maintenance shutdowns are typically accounted for in the forecast. In May and September 2018, the impact of shutdowns was significantly more than operators had estimated, particularly evident at Oseberg, Grane, Gudrun and connected fields. Additionally, the data for 2018 shows more ad hoc maintenance and unplanned production shutdowns than is typical or expected.
In contrast to 2018’s subpar production levels, exploration activity trended positively. During Norway’s annual licensing round last January, the Awards in Pre-Defined Areas (APA17), 34 companies were awarded licenses including five firm wells, as compared to 33 companies and one firm well in APA16. With the additional 12 new licenses awarded in the 24th exploration round, a considerable amount of acreage was applied for and awarded, proving sustained interest in the Norwegian continental shelf (NCS) from E&P companies.
This is also evident from the number of exploration wells completed during the year – 48 wellbores in 2018 versus 34 in 2017 and 39 in 2016. As the NCS is a relatively mature region, is it essential for companies to make new and significant discoveries in order to account for the natural decline in output from veteran producing fields. The high number of successful wells drilled in Norway in 2018 is thus a very positive sign.
A total of 763 million barrels of oil equivalent was discovered in 2018, the largest being OMV’s Hades/Iris gas-condensate discovery in the Norwegian Sea. With an increased number of exploration wells compared to the two previous years, it is no shock that discovered resources increased. However 2018 was an especially standout year, with more than twice the discovered resources compared to 2017 (330 million boe) and 2016 (270 million boe). The aforementioned Hades/Iris discovery stands as Norway’s largest find since Alta in 2014.
On the transaction side, the M&A market in 2018 has been defined by portfolio optimization and continued consolidation on the NCS. Well established companies with significant NCS portfolios have focused on strengthening production and resources at their core hubs, while divesting assets and discoveries in non-core areas. Additionally, smaller companies like Dyas, Chrysaor and Petrolia entered the NCS for the first time, continuing the explorative trend of the past decade. This is an encouraging trend given that smaller companies have proved to be surprisingly adept at nurturing their portfolios and evolving into large actors in the Norwegian sector, altering the player landscape in the process.
In retrospect, the disappointments of Norway’s oil and gas production performance in 2018 were outweighed by positive developments within licensing, exploration and project sanctioning. The net outcome is a bright outlook for the future and a positive start to 2019.