Holland SR 2-07.2

The Oil and Gas Industry in the Netherlands 2007 A Special Report From Oil and Gas Investor and Global Business Reports THE OIL AND GAS INDUSTRY IN THE NETHERLANDS: AN INTRODUCTION The Dutch Way The scene on- and offshore the Netherlands is changing, exposing opportunities that remain in the E&P sector. t is typical of the Dutch to remain so quiet and modest that it is often forgotten that the Netherlands is a major energy-produc- Useful Contacts Iing country. Its diminutive size and no-nonsense approach rarely • The Ministry of Economic Affairs, make waves, but Holland is Europe’s second-largest producer of Directorate for Energy and Telecoms natural gas and the ninth-largest in the world with estimated re- Phone: +31 703798911 serves of between 50- and 60 trillion cubic feet. The country con- www.minez.nl tributes 30% of the European Union’s total gas production. Despite the term “Dutch disease” being coined to illustrate the •The Netherlands Oil and Gas Exploration and Producers potential damage a bonanza of natural resources can have on a Association (NOGEPA) healthy economy, reflecting the situation in Holland in the Phone: +31 703478871 1960s, today Holland is, as it almost always was, a healthy and www.nogepa.nl open economy, outperforming its neighbors and leading the way • Association of Dutch Suppliers in the Oil and Gas Industry in terms of economic reform. Phone: +31 793411981 The bonanza began with the discovery of gas onshore in 1959 www.iro.nl at Groningen Field, the biggest in the world at the time, estimated to contain 3 trillion cubic meters of gas. NAM (the Dutch petroleum company) was, as its name suggests, actually drilling for people. Many of these companies are world-class and 70% of the oil and disappointed to find gas. Nevertheless, the advent of the business of Dutch oil and gas suppliers is generated through ex- popularity of gas has consoled it and made for many very prof- ports, with the U.K. and Norway as main markets but also a con- itable years of exploitation of the massive field—a partnership of siderable presence in more exotic locations, such as Kazakhstan. the Dutch government, Royal Dutch Shell and ExxonMobil. 2006 has been a bumper year for Dutch service companies and Gas has become the most important mineral fuel produced in prospects for 2007 are even better. A high oil price and compa- the Netherlands. Oil reserves are very small, estimated at between nies looking further and further afield to exploit reserves require 100- and 200 million barrels. Both onshore and offshore gas has evermore intricate solutions and Dutch service companies are been easily accessible and is found at low depths, encouraging 20 among the world’s most innovative. A recent wave of mergers, years of extensive activity which began to slow in the 1990s. Net joint ventures and partnerships has broadened their scope. This finding costs are considerably lower than international averages: report will analyze their potential. US$0.50 per barrel of oil equivalent (BOE) on the Dutch Shelf. The business environment and legal framework found in Hol- And, low lifting costs hover at around US$6 per BOE. A dense land are excellent, to the extent that the Netherlands often plays grid of pipelines and platforms has been built and the Small Field an important role in the holding structure of international energy Policy has ensured that, despite the abundance of gas in Gronin- groups due to an attractive holding regime and extensive treaty gen Field, marginal fields were developed, while Groningen has network. Its internal energy market has been completely liberal- been used to effectively guarantee a consistent supply. ized since 2003 in accordance with EU regulations. Today exploration activity has slowed again, but major poten- E&P both on- and offshore has been carefully guided by the tial remains. More than 70 discoveries, adding 1.6 billion BOE to state to ensure the best possible use of the country’s reserves and Holland’s reserves, have been made during the past decade. The adequate incentives are provided to encourage sustainable and re- availability of an extensive infrastructure allows for short lead liable exploitation by companies involved. The government is times and considerable cost savings, while generous off-take terms currently keen to attract smaller, more flexible players to ensure mean investments can be quickly recouped. that remaining small pockets of gas are not overlooked while in- Nevertheless, the infrastructure is aging and within 20 years frastructure is still in place. the majority of it must be retired. Thus, the Dutch are keen to en- As yet, there is no equivalent to the fallow-field initiative as is sure that the exploitation of marginal fields is undertaken before found in the U.K. However, this is expected to change as the this window of opportunity closes. The majors, which formerly Dutch government encourages the majors to make room for dominated the Dutch scene, must make way for nimbler indepen- smaller fish by vacating fields in their portfolios that they are not dents. This report will look at the changing scene on- and off- exploiting. This study examines the legal environment and as- shore the Netherlands and expose opportunities that remain. sesses remaining opportunities for oil and gas in Holland. The Dutch service sector is flourishing, meanwhile, with about With an ever-growing demand in Europe for natural gas, Hol- 400 companies involved in supplying goods and services to the land is determined to become an energy hub for northwestern Eu- hydrocarbons industry, between them employing just over 20,000 rope, using not only its significant remaining gas reserves, but the country’s unparalleled refining capacity, its the world-class Rot- terdam port (where LNG terminals are under construction) and its geographical position within the EU. This position offers the This special report was prepared by Netherlands vast potential to profit from harmonization of EU- London-based Global Business Reports. The wide gas infrastructure under way, and thus benefit from authors are Nicholas de Weydenthal and Bilge economies of scale currently not available in the small country. Cuhadar. More information on the firm is But perhaps its single-most important asset is the basic Dutch good sense and the experience that the Dutch have gathered dur- available at GBReports.com. Cover photos ing the past 50 years in the energy industry. While reserves on- courtesy Keppel Verolme and offshore will decline, with applied Dutch resourcefulness, the industry may not. Ⅺ February 2007 ▪ oilandgasinvestor.com N-3 THE OIL AND GAS INDUSTRY IN THE NETHERLANDS: EXPLORATION AND PRODUCTION To the Last Drop Holland has been dominated by the majors, but as fields become depleted, they’re moving on, setting the stage for smaller independents to take over. espite being the No. 2 gas producer in Europe, the director of the Total unit, is eager “to see some incentives to Netherlands does not display the same opulence equated improve the mining climate for very difficult and very marginal Dwith small nations of the Persian Gulf. The Dutch are re- projects via the oil and gas taxation environment to facilitate puted for their frugality, and the management of their oil and the development of our projects.” gas reserves exemplifies that. As only a part of Total’s global portfolio, operations in the Gas production in the Netherlands began with a bang—in Netherlands are often overlooked in favor of other areas of the 1959, oil prospectors for NAM (the Dutch petroleum company) globe with more favorable environments. This complaint is a hit the onshore Groningen gas field, which was then believed to constant refrain from many upstream players in the Nether- be the largest in the world. This field alone contains two-thirds lands. Compared with other markets, and the U.K. in particular, of the Netherlands’ proven reserves. While being a bit put out the environment is just not friendly enough and this is hinder- to discover gas, rather than oil, in time, NAM and its partners, ing the immediate development of marginal reserves, E&P exec- Royal Dutch Shell and ExxonMobil, have learned to appreciate utives say. their discovery just as Europe’s energy consumers have learned This problem is offset to some extent by advantages. Most to appreciate the clean and efficient fuel that is gas. noticeable is pre-existing infrastructure. Drilling extended-reach The “Small Fields Policy” was introduced by the Dutch gov- wells from an existing platform can render otherwise uneco- ernment in 1973 to ensure that exploration activities were car- nomic reserves viable, something in which Total has great expe- ried out both on- and offshore, despite the huge reserves that rience. Guerrite explains, “If you discover a gas field in the were discovered at Groningen, and also ensuring that the latter Netherlands with 35 billion cubic feet of reserves, you are was not too rapidly depleted. Groningen has acted as a “swing” happy. But to be able to produce this gas efficiently and eco- producer, balancing supply and demand and thus ensuring a nomically, it is very useful to have existing installations in the consistent supply of gas and its homogenous quality. The Small neighborhood. Fields Policy’s incentives included a guaranteed take-off for gas “On a stand-alone basis, the economies would be too low to at a good price from Gasterra, the state-owned (again, with validate it, even at the high levels of gas prices that we are cur- Royal Dutch Shell and ExxonMobil) gas-trading and -distribu- rently experiencing.” tion company. Rob Atsma, chairman of Energie Beheer Nederland (EBN), This sent the majors scouring the Dutch Continental Shelf agrees, “Existing infrastructure can be used to develop smaller (NLCS) for further discoveries and more than 200 small fields fields not viable to develop on a stand-alone basis and thus can are currently operational.

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