What to expect from the NCS and UKCS now and in future

October 15, 2015

Authors: Markus Nævestad, Project Manager, and Jo Husebye, Project Manager

Publication: The article has been exclusively published by Offshore Magazine

The world is currently awash in oil following last year’s productivity surge in the North American shale industry. This downturn will be drawn out as market forces are now required to rebalance supply and demand following OPEC’s decision not to cut production on November 27th, 2014. We will see a cycle this time too but a repeat of the structural downturn in the 1980s and -90s is not expected. OPEC’s spare capacity is only a fraction of that in the 1980s and our field-by-field analysis shows that the supply response will make it increasingly difficult to meet demand post-2017 at current oil prices.

The global oil market is tightening slowly from a peak supply and demand imbalance in Q2 2015, according to latest Rystad Energy research. Nonetheless, the oil demand growth is insufficient in order to prevent further counter-seasonal stock building in H2 2015. Non-OPEC liquids supply growth grinds to a halt in 2016 with only 200 thousand barrels per day of additions. Without higher oil prices, non-OPEC supply growth will turn negative from 2017 due to the lagged effect of the current spending cuts on production. The supply response will initially come from North American shale, then through increased decline in mature fields and eventually from the absence of new project sanctioning. Global demand is expected to grow by 1.1 million barrels per day annually towards 2020. The market will gradually tighten implying an upwards pressure on oil prices towards 2017, which in time will spur a new investment cycle.

Taking the above as a starting point, this article discusses specifically historic, current and future developments on the Norwegian Continental Shelf and the UK Continental Shelf.

The Norwegian Continental Shelf (NCS)

Investment cuts across all segments – a unique observation in the current downturn

The Norwegian organization Statistics Norway recently published new estimates for investments on the Norwegian Continental Shelf (NCS). The information is collected from all operators by Statistics Norway on behalf of the Norwegian Petroleum Directorate, and thus represents the most recent budgets. 

Looking merely at total investments, the investments flattened out in 2014 at NOK 214 billion, following an extraordinary growth period from 2010-2013, with an annual growth of 19% from NOK 127 billion to NOK 212 billion. This can be seen in Figure 1. Most recent estimates for 2015 and 2016 indicate two back-to-back years with a decline for the first time since 1999 and 2000 on the NCS.

Looking into the details of the investment history and forecast, and splitting the total into Exploration, Field development and Fields in operation, one can observe several segment specific behaviors:

Exploration: It is more the rule than the exception to see double digit growth or decline in exploration activity year on year. In the mid 2000’s, after the introduction of Awards in Predefined Areas (APA) in 2003 and the "cash back" scheme (the state reimburses the 78% tax base of costs related to exploration drilling) in 2005, that the exploration activity saw a steady growth over several years. The exploration activity growth was also fueled by an increasing oil price. Statistics Norway now reports an increase in 2016 of 35% compared to the most recent 2015 estimates. Rystad Energy believes this increase is too high and will most likely be lowered in future estimates, but the conclusion remains unchanged: Exploration has and will be volatile – the observed trends are normal and not unique.


Field development: Following the oil price increase after the financial crisis, multiple PDO’s (Plan for Development and Operation) were submitted for stand-alone developments such as Knarr, Valemon, Ekofisk 2/4 Z and Eldfisk 2/7 S (2010), Edvard Grieg and Martin Linge (2011), and Aasta Hansteen, Ivar Aasen and Gina Krog (2013). With such a large number of projects under development at the same time, the field development market increased from NOK 30 billion in 2010 to NOK 73 billion in 2014 – a staggering 24% annual growth. In future, such growth periods will usually be followed by a cool down, as seen in Figure 2. Hence, the observed decline in the field development market is not unique.

Fields in operation: Looking at brownfield investments (including infill drilling), this market has almost been unaffected in the previous downturns: 3% decline in 1992, 1% decline in 2002 and 2% in 2010. 2014 showed a massive drop by 14%, the largest drop ever in this segment. Most recent estimates suggest a further drop of 10% in 2015, and another 14% in 2016. If this happens, the 2016 brownfield market will be some 60% below the peak year in 2013. Three years of double-digit (%) decline in the brownfield market is not normal – the brownfield market has not been cyclical – it is unique for the current declining market. MMO (Maintenance, Modifications and Operations) frame agreement were observed 20% down in 2014, which is the largest cut ever seen.  Larger modification projects are postponed or cancelled.  The philosophy on MMO seems to have changed from “Modification and repair for long term robust solution – change equipment!” to “Modifications and repair at lowest possible cost – repair and keep”. Only a few large contracts have been awarded over the last six months, e.g. the tie-back modification for Maria on Kristin – a NOK 600 million contract awarded to Reinertsen March 2015 is one of the biggest.

Using Rystad Energy’s bottom-up database consisting of historic and forecasted spend field-by-field, a complete picture can be drawn including both investments (including un-sanctioned fields) and operational expenditures, as seen in Figure 3. Total upstream expenditures ended up close to USD 39 billion in 2014, a 7% growth from 2013. The decline in 2015 is estimated to about 8% and is lower than what the investment figures released by NPD imply. This is driven by higher investments in fields under development, among others. Additional cost overruns and carry-overs are expected on projects currently under construction in Asia or in the hook-up phase such as Goliat. Projects like Aasta Hansteen and Martin Linge are believed to experience trouble to meet planned budgets and timings. Similarly, 2016 is expected to be slightly down from 2015 levels, with several projects being in the completion phase, and the modification market possibly ending up higher than reported by Statistics Norway as of today.

Looking towards 2020 there are a lot of uncertainties in investment estimates, specifically regarding the sanctioning of new projects and exploration levels. For example, Statoil has pushed the final investment decision (FID) on both Johan Castberg and Snorre 2040 – both expected to be multi-billion dollar projects with new platforms (floaters); FID’s are now expected by H2 2017, with start-up around 2022-2023. With this current time-line, these projects are important to meet the forecasted 2020 expenditures of about USD 40 billion. Other key projects are Johan Sverdrup phase 1 and 2 and potential developments of the Skarfjell, Alta/Gohta and Pil discoveries. In the current forecast a relatively flat exploration market at around USD 5 billion has been assumed from 2016 onwards after peaking at 6 billion in 2013.

UK Continental Shelf (UKCS)

Persistent low exploration results in UK is evident through a small backlog of potential development

The current field development boom observed at the NCS includes a healthy mixture of old discoveries having matured into economical projects (e.g. Martin Linge and Valemon) and discoveries made over the last decade (e.g. Edvard Grieg and Goliat). The latter is a result of an extraordinary exploration comeback as a direct outcome of the two aforementioned governmental initiatives - APA and “cash back”. Comparing discovered volumes at the NCS with the UKCS pinpoints one of the key issues for the UKCS. The exploration results have been persistently poor and on decline since the activity peaked in 2007/08. In 2008, 121 wildcat and appraisal wells were drilled at the UKCS and 444 million boe of oil and gas were discovered. Since then the exploration activity has decreased and in 2014 only 38 exploration wells were drilled and only 98 million boe of oil and gas were discovered.

Some of the discoveries made over the last ten years and currently under development are Conwy, discovered in 2009 and developed with an unmanned platform; Western Isles Development Project (WIDP), discovered in 2008 and developed with a USD 1.5 billion FPSO; and the Catcher field, discovered in 2010 and also developed with an FPSO, with first steel cut in Q1 2015.  A significant part of the activity over the last years at the UKCS has been redevelopments of existing fields. BP is currently redeveloping its Schiehallion and Loyal fields for £3 billion with a new FPSO expected on stream in 2016, in addition to the £4.5 billion Clair Ridge project, which is the second phase of the Clair field. Talisman is also progressing on its £1.6 billion Montrose area redevelopment project.

Looking forward towards 2020, the portfolio of stand-alone candidates that could spur UK greenfield investments is limited to a handful of candidates. The Culzean project operated by Maersk Oil could see a final investment decision in August 2015 with start-up in 2020/2021. The field is to be developed with a new standalone facility with bridge linked platforms including a wellhead platform, a central processing facility and utilities/living quarters. The total investment for the project is expected to be in excess of USD 4.7 billion. Statoil is also expected to decide on a concept for the Bressay heavy oil field in 2015 and Chevron has not given up on its challenging Rosebank development west of Shetlands.

The brownfield market in the UK differs from the Norwegian market with its historic large EPC contracts. The NCS is developed with fewer, larger platforms, many of which are now seeing spare capacity to tie back new subsea fields. With several of the Norwegian platforms having capacity to tie back multiple subsea fields, there is a larger incentive to perform large modifications. With a limited field development agenda, a smaller brownfield market and a lack of exploration appetite, the current outlook for the UKCS is not promising in the short term. A drop of 25% in total EP expenditure is expected in 2015 and a further drop of 12% in 2016. In the current market, the UKCS spend is not expected to reach historic highs of 2013 and 2014. On the positive side, the British Government has recently unveiled different measures for tax reduction supporting investments in maturing offshore prospects and exploration. The Wood Review has also presented recommendations on how to maximize the recovery from the UK North Sea. Combined with the current cost cutting schemes observed in the industry, the outcome could change going forward.


The recent downturn has affected investment levels on both the NCS and the UKCS. On the NCS we expect to see an investment cut across exploration, field development and operations in 2015. This is a unique observation for the current downturn. Total upstream expenditure is estimated to decline by 8% from the peak in 2014 to 2015 and stay flat in 2016. In the longer term however, the activity level is expected to pick up on the NCS, largely driven by the Johan Sverdrup development. 2014 investment levels could potentially be reached by 2020. On the more mature UKCS, poor exploration results and low exploration activity over recent years are evident through a small backlog of potential developments. A drop of 25% in total EP expenditure is expected in 2015 followed by a further drop of 12% in 2016. In the current market, the UKCS spend is not expected to reach historic highs of 2013 and 2014 towards 2020. The government is, however, introducing new tax measures that could have a positive effect on investment levels going forward.

For link to article, click here


Article Contacts

Markus Nævestad, Project Manager

Phone: +47 24 00 42 00


Jo Husebye, Project Manager

Phone: +47 24 00 42 00


Julia Weiss, VP Marketing

Phone: +47 24 00 42 90



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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 Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), Africa as well as South East Asia.