Wood Mackenzie’s annual review of the Norwegian upstream sector

Despite the dramatic fall in oil prices in the last quarter, Wood Mackenzie's annual review of Norway's upstream oil and gas sector shows that on the surface 2014 was business as usual for the country's buoyant upstream sector.  Sustained high oil prices for the majority of 2014 ensured that exploration continued apace, capital spend cooled only a little, M&A activity was at record levels and production even increased for the first time in over a decade.  However, the slump in oil prices towards the end of the year means that the outlook for 2015 is a different story, as Wood Mackenzie warns that cuts in exploration and development spend will be substantial  - and creating value from deals done in 2014 becomes more of a challenge.

Mr Malcolm Dickson, Principal North Sea Analyst for Wood Mackenzie says: "The corporate appetite for new exploration acreage in Norway remained strong last year, shown by a record year for licences awarded for mature acreage.  Norway stayed a global hotspot for exploration activity, with 59 exploration and appraisal (E&A) wells drilled - the same number as in 2013. This resulted in the discovery of 817 million barrels of oil equivalent (mmboe), close to the 10-year average. However, looking at this in more detail reveals that 2014 was actually a lacklustre year for exploration. Despite 44 exploration wells being drilled, there were only four discoveries that we would class as commercial – or likely to be developed."

However, Wood Mackenzie's latest upstream analysis also highlights that two Norwegian finds ranked in the top 30 discoveries round the world last year, as Mr Dickson explains: "VNG's Pil & Bue finds in the Norwegian Sea were arguably the standout discoveries of 2014, with a combined 135 mmboe in reserves and the added advantage of existing infrastructure nearby. Plus, Lundin’s success in the Barents continued, with its large Alta discovery, near 2013’s Gohta find. Aside from these, the main story for the year was the disappointing exploration results for Statoil in its high profile Barents sea acreage – most notably in the Hoop and Johan Castberg Areas.

"Despite the disappointing results Statoil remained the biggest investor by far, accounting for a third of the total development spend.  Overall, development spend in Norway dropped marginally, from NKr 193 billion (US$29.8 billion) in 2013 to NKr 187 billion (US$28.8 billion), and around two thirds of the spend was on existing producing assets. Investment spend on new field developments, however remained steady at over NKr 70 billion (US$11 billion), including Eni’s delayed Goliat project in the Barents Sea. Spend on the giant Johan Sverdrup field is still expected to start from 2015, once the development plan is fully sanctioned."  Mr Dickson adds.

However, Mr Dickson remarks: "Despite high investment, 2014 saw the lowest number of developments  brought onstream since 2011 with just five fields starting production. Of the five, all except Lundin’s Brynhild are Statoil-operated North Sea assets and the combined recoverable reserves of the new producers - 292 mmboe – contributed to Norway's first increase in oil production for the first time in 14 years. The outlook continues to look positive, with eight fields expected to be brought onstream in 2015, which we estimate will contribute 766 mmboe of new reserves."

Wood Mackenzie's report also shows there was record corporate activity in 2014, with four big deals underpinning an exceptional year. Mr Dickson elaborates: "The value of oil and gas assets traded in 2014 reached NKr 41 billion (US$6.3 billion), over 50% higher than the previous record in 2013. However, most of the activity happened with Brent still around US$100 per barrel (p/bbl) – leading to big downside risk. This level of deal activity shows that Norway is still a big draw, thanks to its prospectivity and stability, however looking ahead to 2015 the challenge will now be creating value from these deals given the dramatic drop in oil prices since they were announced."

With the current volatility in oil price Wood Mackenzie offers the following outlook for 2015: "Despite our projected production increase this year, we expect to see a slow down in exploration, M&A activity and investment – which we currently expect to fall by 25%, to around NKr 136 billion (US$22 billion). The current uncertainty over the oil price and future project returns means that cuts in exploration, deals and development spend will be unavoidable for the Norwegian sector in 2015." Mr Dickson offers in summary.


Adapted from a press release by David Bizley

Published on 13/01/2015


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