Measure for measure
  from: Offshore Engineer
  by: Darius Snieckus
  Tuesday, April 29, 2008

Though exploration activity off Norway was seen to be picking up last year and strong interest shown in the latest APA and traditional licensing rounds, oil and gas production levels are currently falling far short of the 3 million boe/d targeted in 2004. Darius Snieckus opens OE’s latest review of the Scandinavian offshore scene with a look at the Norwegian government’s current action plan for the province – and its hopes of a ‘moon landing’ for carbon capture and storage technology.

Coming into office last year as a member of prime minister Jens Stoltenberg’s second government, Norway’s new minister of petroleum and energy, Åslaug Haga, did not mince words in assessing the current state of affairs on her country’s continental shelf. ‘High oil prices will continue to generate a high income for the Norwegian state in the next few years,’ she stated. ‘However, the level of Norwegian production has not been this low since 1994. As a considerable oilproducing country with the responsibility of resource management, we have to intensify the effort, especially on existing fields and exploration activities, to slow down this negative trend. This will require a considerable effort from the industry as well as from the authorities.’

Signs, to judge by the last six months, are encouraging, with the latest round of Awards in Predefined Areas (APA) – the 2003 replacement of the old North Sea Awards licensing system that aims at making fullest use of existing NCS infrastructure in developing the region’s remaining ‘economically more challenging’ heartland reserves – and nominations for the 20th licensing round both having excited considerable interest from the oil and gas industry. The prize remains considerable too. Year-end calculations by the Norwegian Petroleum Directorate estimate some 53 billion boe still to play for in the 40-year old offshore province.

Guided by a philosophy that ‘more players mean a greater variety of ideas, which in turn promotes competition’, APA 2007 saw ‘major interest’ in the form of 113 applications for acreage, including several blocks that were ‘intensely’ contested, leading to the award in February of 52 production licences spread among the North, Norwegian and the Barents seas. Meanwhile, the delayed 20th licensing round, for which applications were made last autumn, saw some 46 companies put in for acreage – as compared to 19 in the 19th round – nominating 301 blocks or part-blocks. Plainly, the appetite for E&P off Norway remains keen.

The APA system being envisioned as a route for small companies ‘to quickly establish a business position at the NCS [that] ensures a varied mix of companies operating in Norway, the latest round put a large number of production licences in the hands of a coterie of smaller operators such as Aker Exploration, Genesis Petroleum and Rocksource, while balancing the offshore ecology by also awarding acreage to majors Shell, Total and StatoilHydro. Guarantees of ‘conditions for a rapid exploration and progress towards a possible plan for development and operation for the potential resource’ were made by the ministry.

Though the former minister of petroleum and energy, Odd Roger Enoksen, framed the 2007 round as expressly designed to ‘extend the APA in to the Barents to give industry access to more acreage’, only seven licences were awarded in Norway’s northernmost region, while 24 were handed out in the North Sea and 21 in the Norwegian Sea. For current deputy ministry Liv Monica Stubholt, the awards nonetheless ‘in a fairly balanced way reflect the three main energy provinces’ on the NCS.

Knowledge base jump

‘I would caution against reading the awards made as part of APA 2007 as indicating less interest in the “high North”,’ she states. ‘I think the rounds are based on very concrete assessments of the applications and interest shown by the industry and so will not necessarily mirror a “prioritisation” as such. One could imagine more awards in the Barents but the quality of the applications put forward and the projects proposed are obviously key factors in our decision.’ Stubholt notes that future E&P in this frontier region must be seen through the lens of Norway’s integrated management plan for the Barents Sea and Lofoten, a programme that will over the next two years carry out seismic surveys in the Nordland VII and Troms II areas as part of a ‘knowledge gathering’ initiative in a wider area thought to hold 17% of remaining reserves on the NCS.

‘Our “high North” strategy is based on a three-tiered approach: presence, activity, and science-based decisions,’ she continues. ‘And this I hope shows that we have no intention of moving too slowly in the “high North”, but the science-based element means that we want to really make sure we know exactly what we are doing there.We want to be certain our steps are measured as we continue to explore and develop the Barents.’

Last October’s 20th licensing round, announced with the promise of offering ‘less-explored frontier areas with potential for large discoveries’, motivated 46 companies to apply for blocks in the North, Norwegian, and Barents seas, cordoning off the latter’s ‘especially valuable areas on the polar front, ice edge and Bear Island’, along with the coastal areas of Troms and Finnmark, and Eggakanten, Nordland VI, Nordland VII and Troms II. The ‘high interest’ response from operators was said by the ministry to have been helped by a ‘pleasing’ number of small and mid-sized oil companies nominating blocks. Awards are to be finalised by next spring.

‘We very much welcome the continued interest – and renewed interest – from the supermajors and other large international oil companies in the NCS – for Norway foreign operators have been key from day one,’ states Stubholt. ‘It is not a given that these companies will show an interest in the region because of the current run on new production: even the largest companies have to allocate resources, prioritise their exploration budgets and so on. It is very important to continue encouraging foreign participation here.’

‘And, at the same time, we are also glad to see the number of small and medium-sized companies taking part,’ she adds. ‘We need as diverse a group of companies as we can have helping to make the most of what remains on the Norwegian shelf.’

Carbon capture questions

Meanwhile, with carbon capture and storage schemes, potentially accounting for a reduction in the world’s CO₂ emissions of as much as 28% according to government figures – ‘a major possibility, but also technologically challenging’ – Stubholt says Norway’s push to become a global leader in CCS technology and processing is one that has a ‘very high profile and [is] very ambitious’. In fact, the Stoltenberg government has called it its ‘moon landing’.

Wheels are turning on four CCS projects including the centrepiece Test Centre Mongstad venture, a proposed 100,000t/yr CO₂ testing facility with the mission of developing cost- and technical riskreducing solutions for carbon capture. Two technologies, one carbonate-based, one amine-, will be tested in parallel once TCM is up and running in 2011. A second stage in the project, being developed by partners Dong, Shell, StatoilHydro, Vattenfall and Gassnova, is set for 2014: full-scale CCS, with Gassnova managing plans to map ‘transport routes and storage solutions’ for more than 1 million t/yr of CO2 from the future combined heat and power station.

Also, at Kårstø, the government will be ‘fully financing’ a CCS facility based on existing amine technology. ‘This will not be a technology-breakthrough project like at Mongstad, but it will be a hugely important R&D project in terms of upscaling a facility for high-end storage, which will answer serious questions about design modifications for such a large-scale industrial site,’ says Stubholt. ‘Moreover, even if we manage to develop this technology at the scale we are aiming at, the “moon landing” is not Mongstad or Kårstø, it is moving development of CCS facilities into a more cost-efficient phase, to make it more commercially viable internationally.’

Norway’s oil production in 2007 – 2.6 million b/d – fell well short of the target 3 million b/d set out by government in 2004 and was the lowest output level in almost 15 years. Still it was not from lack of trying. Thirty-one wells had been spudded by the end of last November, five more than in the whole of 2006, and 12 discoveries made – with a 13th strike by StatoilHydro this year on the Obesum prospect in the Barents Sea. As has so often been the case on the NCS in the last decade, hope springs eternal, and the government authorities are taking courage from the fact that a less constricted rig market will mean still higher exploration activity in 2008 – and, fingers crossed, more finds to add to Alve, Alvheim, Gjøa, Rev, Skarv, Tyrihans, Vega, Vega Sør, Vilje, Volund, Volve and Yme fields that are presently under development or in early production.

‘More of the same’ is largely the strategy being espoused by the ministry as a drag chute for falling production levels, with Stubholt emphasising that there is a desire ‘to push the envelope in terms of EOR and IOR’ needed to carry the NCS forward.

‘This, of course, depends on the development of the new technology that will make it possible to raise recovery rates from an average of 50% or so to something substantially higher, and having the strongest, technology-driven operators present and committed to the Norwegian shelf,’ she concludes. ‘We, for our part, have to continue to make the adjustments, in all respects, needed to make the region as attractive as possible to these companies. There is a certain urgency we feel in ensuring these companies are able to apply their most innovative technologies to developing fields before the infrastructure is shut down – nothing lasts forever, after all – because this will ensure the longestterm future of the shelf.’OE

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