Production Development on the Norwegian Continental Shelf 2 Table of Contents Summary and Conclusions
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KonKraft report 2 Production development on the Norwegian continental shelf 2 Table of Contents Summary and conclusions . 5 1 . Introduction . 11 1.1 Background and mandate.............................................. 11 1.2 Context............................................................ 12 1.3 Methodology . 13 1.4 Content of the report . 14 2 . History of and business environment for production on the NCS . 15 2.1 Chapter summary.................................................... 15 2.2 The NCS is a maturing hydrocarbon province.............................. 15 2.3 Exploration on the NCS . 18 2.4 Level of activity increasing despite rising costs . 21 2.5 A number of key differences exist between the UK and Norwegian business environments . 23 3. Improving oil and gas recovery from existing fields . 24 3.1 Chapter summary.................................................... 24 3.2 The average ultimate recovery factor on the NCS is high ..................... 25 3.3 Contingent resources in existing fields are still considerable, but reserves and contingent resources are declining rapidly . 26 3.3.1 Ensuring that activity and investment levels remain high in maturing fields will be challenging .................................................... 27 3.3.2 Maintaining the track record for applying new technology will be challenging 29 3.3.3 A debate exists on the contribution of EOR to growing reserves in existing fields 30 3.3.4 IO can contribute significantly to increasing production and reserves ........ 32 3.4 Recommendations ................................................... 35 4 . Continuing to encourage exploration activity in currently accessible areas . 39 4.1 Chapter summary . 39 4.2 A significant undiscovered resource potential remains in currently accessible areas 40 4.3 The authorities have taken steps to boost exploration activity ................. 41 4.3.1 Action by the authorities .......................................... 41 4.3.2 Impact of action by he authorities to date .............................. 42 4.4 It is too early to say that high exploration activity is sustainable and will translate into significant production and investment ....................................... 43 4.5 Recommendations ................................................... 45 5. Building a “small field” development mindset . 46 5.1 Chapter summary . 46 5.2 Most future discoveries are expected to be small ........................... 47 5.3 E&P companies in Norway have historically tended not to explore for and develop small discoveries . 48 5.4 An opportunity still exists to add to yet-to-be-found resources by making development of small discoveries more attractive ........................................ 51 5.4.1 Some early signs of success have been seen, but progress is far from secure . 52 5.4.2 Exploring for and developing small prospects which depend on existing infrastructure is a matter of urgency, especially in the North Sea . 53 3 5.4.3 The potential price for reducing the minimum volume required for economic development . 53 5.5 Recommendations . 56 6 . Opening new areas . 58 6.1 Chapter summary.................................................... 58 6.2 Production and investment levels are predicted to decline in existing areas....... 59 6.3 Opening new areas can have a significant impact on long-term production and investment levels . 59 6.4 Why a decision in 2010 to open new areas is urgent......................... 61 6.5 Maintaining a robust petroleum industry.................................. 62 6.6 Recommendations . 63 7 . Industry is adapting to the sharp rise in activity . 66 7.1 Chapter summary.................................................... 66 7.2 Coping with change .................................................. 66 7.2.1 Declining performance for well delivery .............................. 66 7.2.2 Shortage of qualified mobile drilling rigs . 68 7.2.3 Production-related activities on some older platforms have been delayed by growing maintenance requirements . 71 7.3 The impact of the transitional period . 71 7.3.1 The impact of the high level of activity on production.................... 71 7.3.2 Other possible impacts from the increased level of activity . 72 7.4 What would help the industry to cope better with changes? . 73 8 . Attract, retain and make best use of the necessary people and expertise . 74 8.1 Chapter summary . 74 8.2 Shortage of qualified labour on the NCS .................................. 74 8.3 The impact of demographic change...................................... 75 8.4 The influx of new players has generated competition over personnel . 76 8.5 Recommendations . 76 Appendix 1: The project team’s modelling tool and assumptions . 79 A1.1 Introduction....................................................... 79 A1.2 Input assumptions for scenario modelling . 79 A1.3 Scenario description . 86 A1.4 Results of the scenario modelling . 86 Appendix 2: Project team’s engagement with stakeholders . 88 Appendix 3: NPD resource classification . 89 Appendix 4: Assumptions for estimating contingent resources and a comparison with the NPD estimates . 90 A 4.1 Contingent resources in existing fields.................................. 90 A.4.2 Contingent resources in discoveries.................................... 91 Terms and definitions . 93 References . 95 4 Summary and conclusions Production on the NCS is maturing After almost 40 years of virtually uninterrupted growth, total hydrocarbon production on the Norwegian continental shelf (NCS) has reached its highest level ever, with a daily output of 4-4.5 million barrels of oil equivalent per day. It is expected to remain at this level for the next 7 years. After 2015 or thereabouts, however, total oil and gas produc- tion is forecast to start declining. Oil production is already falling. Gas output has been increasing, but this is not expected to continue offsetting the drop in liquid production beyond 2015 or thereabouts if no action is taken. Only half the combined oil and gas resources predicted by the Norwegian Petroleum Directorate (NPD) will have been produced in 2015. Remaining recoverable resources, including those expected to be found by further exploration, are currently estimated to be 38-77 billion barrels of oil equivalent (boe). This estimate could be 25-65 billion boe in 2015. Only 40 per cent of the total expected remaining hydrocarbon resources remains to be discovered today, which explains the wide range in the estimates. This huge potential must be managed well to avoid a sharp decline in production and to support a healthy level of long-term investment. The report on production development on the Norwegian continental shelf is published at a time when major changes are taking place both inside and outside the petroleum indus- try. Several factors make a review of what can be done to address the production decline particularly urgent. Although the current level of activity in the Norwegian petroleum sector is high, assessing the long-term perspectives for the industry is very important. In many cases, the period between the award of licences and the start of production can be 15 years or more. Decisions taken now may have important implications for levels of production and activity in the 2020s. Overview of production development on the NCS • The largest hydrocarbon accumulations were discovered in the 1970s and 1980s. Many smaller discoveries were made in the course of the 1990s. An exception is Ormen Lange, found in 1997 as the last big discovery on the NCS. • Development of these large fields required high levels of investment and expertise as well as extensive use of new technology. These new technologies were subsequently applied worldwide. • The recovery factor for fields on the NCS is amongst the highest in the world.This is largely a result of the extensive use of new technology. Over the past 10 years, however, the addition of resources to replace the oil and gas produced has declined sharply. • The large fields which accounted for the bulk of oil production from the NCS are now getting older. More than 60 per cent of their expected recoverable reserves has been recovered, and their output is declining rapidly. The remaining oil in these fields is more technically difficult to recover and therefore more labour-intensive and expensive. Limited time is also available for applying new technology to improve recovery from these fields. Debate exists, for example, over the extent and pace of 5 the contribution which enhanced oil recovery (EOR) methods can make on the NCS. In addition, more attention needs to be paid to research into and development of improved oil recovery (IOR) methods. • An increasing share of production on the NCS comes from small and medium- sized fields. Most of these have been developed as subsea tiebacks to existing infrastructure rather than as stand-alone projects. The ultimate recovery factor for small and subsea fields is lower on average, and extending the production life of these fields in a cost-effective way will be challenging. • Economic development of small fields often depends on the presence of existing infrastructure in the vicinity. Since many platforms are approaching retirement, the time window for achieving full exploration of the North Sea is rapidly closing. • Future developments in areas currently accessible for petroleum activities are expected to be small. However, the sum of these could have a significant impact on the level of investment. Economic development of future small