North Sea E&P: Decline coming to an end

November 2, 2015

Authors: Olga Kerimova, Analyst, and Theodora Batoudaki, Analyst, Rystad Energy

Publisher: PESGB Newsletter, December Edition

Production from the North Sea is expected to remain constant over the next five years as operators have been focusing on redeveloping mature discoveries, reversing the production decline of the last decade. From 2020, Johan Sverdrup will play a significant role in maintaining this trend. This article assesses the North Sea E&P status and outlook, illustrated by the three key drivers: production, exploration success and spending.

Figure 1 shows the total production from the North Sea region, split by oil and gas, from 2005 to 2020. Norway and United Kingdom make up about 90% of the region’s production. Production has been declining historically due to natural decline of mature fields, such as the Norwegian fields Gullfaks (Statoil-operated), Ekofisk (ConocoPhillips), Sleipner (Statoil) and Oseberg (Statoil). In 2015, production is expected to increase. The main drivers for this growth are the mature fields Oseberg and Gudrun that produced more than expected, partly as a result of a reduction in maintenance during the summer months this year. Additionally, operators have focused on extension projects on already producing fields such as Ekofisk South and Valhall. From 2016 and going forward, production is expected to stabilize at around 4.2 million boe/d. The contribution of Johan Sverdrup, the largest discovery of the last decade, is visible in 2020, when the field is expected to start producing. From 2020 and going forward, Johan Sverdrup is estimated to be the field with the second most significant contribution to production, after the giant Norwegian field, Troll.

Figure 2 shows the discovered volumes in the North Sea from 2005 to 2014. Norway’s Johan Sverdrup field accounts for over 35% of discovered resources in the region over the last ten years. The field was discovered in the Avaldnes prospect in September 2010 by Lundin Petroleum. Additional appraisal drilling in the Aldous Major South prospect led a further discovery by Statoil in mid-2011, increasing the resource estimate for the field. In 2012, Statoil made another large discovery in the nearby Geitungen prospect, further extending the Johan Sverdrup field. Other significant discoveries include the ConocoPhillips-operated Jasmine field discovered in 2006 and the Maersk Oil-operated Culzean gas field discovered in 2008, both in the UK North Sea, as well as the 2007 Edvard Grieg discovery in Norway.

Figure 3 shows the total spending in the North Sea from 2010 to 2020. Spending levels have increased significantly from 50 BUSD in 2010, peaking at almost 80 BUSD last year, followed by a significant drop expected this year and into 2016 due to the fall in the oil price. Capital expenditure (Capex) reached around 21 BUSD in 2010, with an expected growth to approximately 34 BUSD by 2020. The increase in spending over the last five years is primarily from mature fields in the Norwegian North Sea, such as Troll, Ekofisk and Gullfaks, as well as the recent Edvard Grieg and Jasmine discoveries. Future growth is expected mainly from the development of discovered resources, primarily the first phase of the Johan Sverdrup field, as well as the Culzean field, both of which are expected to start producing around 2020. Most of the development costs for the first phase of Johan Sverdrup are expected to be incurred by 2019, leading to overall lower spending levels in 2019, before picking up again in 2020. The operating costs (Opex) are expected to remain around 27-30 BUSD per year, accounting for inflation, consistent with the production trend shown in Figure 1.

Conclusion
In 2015 an increase in North Sea production is expected, partly as a result of lower maintenance throughout the year and as new development projects come online. Production is estimated to remain stable until the end of the decade. Investments are expected to start increasing again from 2017, as the development of the major discoveries Johan Sverdrup (2010) and Culzean (2008) progresses. No significant increase is expected in exploration activity in the region, validating the focus on stable growth from developing existing discoveries and mature fields.

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Article Contacts

Olga Kerimova, Analyst

Phone: +47 24 00 42 00

olga.kerimova@rystadenergy.com

 

Theodora Batoudaki, Analyst

Phone: +47 24 00 42 00

theodorab@rystadenergy.com

 

About Rystad Energy

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.

 

Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), Africa as well as South East Asia.